We Await Bernanke's Speech on Monetary Policy Since the Crisis

Bernanke's speech this coming Friday at Jackson Hole should spark this incredibly dull market into some action.

With limited volume and small trading ranges, the E-mini S&P 500 Futures (ES) is up more than 4.2% since the low on August 2nd and is setting up for at least a small correction. September is historically a bad month in the market and it is looking like September of 2012 is setting up to fit that bill.

Much of the price gains the markets have experienced over the summer can be attributed to expectations of further easing by the Fed. There is no chance, in my opinion, that Bernanke will announce any official new easing measures at Jackson Hole. Last week's FOMC minutes that seemed to support more QE have already been disregarded as outdated. Economic data is just not weak enough to warrant it. GDP numbers released this morning were better than expectations adding to the argument against more QE.

So without more easing, I expect the market reaction to be one of selling in September. Its not that the market expects more easing measures to come out of Jackson Hole, but without at least some solid bait to feed on the expectations that more easing is likely to come out of the September FOMC meeting, the market will have no choice but to sell-off a bit from its current frothy levels. At the same time, I am not overly negative on the markets. Not needing additional monetary easing  is a sign that the economy is not weak enough to warrant it. Economic data continues to improve and the market believes the Fed will act if it needs to. This creates an artificial base that will keep price from trading too low. Draghi and the ECB could also spark the markets with news of a bond buying program in Europe.

Once volume picks up, I will post price levels that correspond to the view that a small correction is coming and will be followed by what could be a major buying opportunity.

Fed Minutes Bullish, but Market Reaction Limited So Far

Its interesting to observe market behavior following yesterday's Fed minutes which suggested members are warming up to the idea of increased stimulus. This would have ignited a significant rally had it come a month ago. But yesterday's rally lost steam quickly and markets have already traded down only 4 points off yesterday's lows. 

This morning's negativity is in reaction to St. Louis Fed President Bullard who contradicted yesterday's minutes when he said that current economic conditions do not yet warrant further easing. Even before Bullard's comments, though, the reaction to the Fed's bullish minutes did not ignite nearly the rally that I would have expected. This may be just because we remain in the summer vacation time-period in the markets, but it may also be signalling that the markets do not have that much steam left to push them higher. 

That being said, I continue to like the market if the ES trades down to the lower 1400s and support confirms there. So we'll see how the first hour of trading goes this morning. I like long entries down in the lower 1400s on the ES.

No Signal for a Reversal Yet as Markets Continue Slow Grind Higher

Nothing has changed, expect light trading to continue this week. I thought we might get a short entry signal before the end of last week, but it didn't happen. There remains plenty of resistance overhead, so I continue to like shorts at new highs while buying dips. There will be a nice opportunity to hold a short entry for at least 30 points, but until we get a signal, I have to favor taking profits on short entries relatively quickly and buying the dips...

This morning I will consider buying the market if the ES trades down to 1405-1407 and overall will be watching for a trading range between 1400 and 1430 this week.

In fact, there are two overhead resistance levels I will be watching on the ES:
1420-1421 and 1430-1431.

I will look for signals to enter short at or around both of these levels this week on the ES.

Overall though, at least for the time being, you have to favor the long side. When it is time to enter short and hold for a significant gain, I will post about it...

Summer Trading = Dull. Still, Opportunities Exist

Last week was even less exciting than I expected with the ES trading in less than a 17 point range, less than my already conservative 20 point expectation. Nothing has really changed, I expect limited action and limited trading volume to continue this week although the range should expand a bit. I continue to look for opportunities to sell this market. Last week the 1400 level provided many opportunities for short plays. This week should provide more of the same. We are already seeing another slightly higher high (1404 ES) sell off this morning. In the current market climate, when I say sell the market I am talking day trades and taking profits when you get them, whether that's 5 points, 7 points or 10 points.

Although there are great opportunities for shorts, in the current action, you have to favor the upside with the realization that the upside is limited. I fully expect 1409-1412 ES (on the U-September Contract) to be tested early. I will look for shorts at this level, like I was looking for shorts at or above 1400 last week. When selling does finally take hold, I expect the ES to trade down to 1375 and possibly as low as 1365. That's a potential 35+ point swing and that's the trade of the week. We'll have to wait and see though as there is no sign of sellers entering the market yet. 1409-1412 needs to be hit before I will consider holding any short entries for a significant gain. If that view changes I will post comments about it.

Lets not forget there are plenty of buying opportunities as well, without a move up to about 1410 first, I will like buying the dips.

Levels to watch today on the ES:
Resistance above at: 1405-1406, 1408-1409, 1411-1412
Support below at: 1395-1396, 1391-1392, 1387-1388

Market Begins the New Week on Strength

After hearing from the Fed and the ECB last week as well as getting a good amount of economic news like the US employment report on Friday, the week ahead looks to be much less interesting.

I have made it clear that I like short entries as the markets continue to make slightly higher highs, but last week's finish makes me less excited about the short side. It is always better to act first when an opportunity presents itself and the ES already sold off more than 30 points after crossing the 1380 mark that I spoke about early last week.

The latest price pattern negates much of my enthusiasm for a potential significant move lower. That being said, there remains plenty of resistance overhead and unless we see confirming action above 1400, Markets remain technically bearish in the bigger picture. That could easily change soon.

Right now I am focused on the 1380-1400 range on the ES. I like shorts at the upper end of the range and longs at the lower part of it in the near-term. We'll have to see if the market confirms above 1400 or below 1380 to better gauge future direction...

Levels to watch today on the ES:
Resistance Above at 1395-1396, 1399.50-1400.50
Support Below at 1383-1384, 1380-1381, 1374-1375

FOMC Minutes Offer No Surprises.

As expected, nothing of particular interest came out of the FOMC Minutes. Market initial reaction is sell. We'll see if the 1368-1370 support can hold this afternoon. Can't rule out a suckers rally to another new high just yet. I'll of course be looking at opportunities to get short if we do get such a rally.

From the Minutes:
Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

Market Continues Consolidation Ahead of FOMC Minutes

Took two days of trading, but both the trade setups I mentioned in Monday's post have come in to play. The sell above 1385 and the buy below 1372 on the ES. If still holding a long from the low 1370s, I would consider taking profits between 1382 and 1385. There is, however,  a solid possibility of seeing a higher high, so if you are holding more than one contract, scaling out of the position would be smart.

Next step is to wait for the FOMC minutes at 2:15pm EST. I don't expect any new information to come out of the minutes. The Fed has no reason to offer up more QE at this time, and unless there are some surprises, the only market reaction I can expect, is one of selling. I continue to prefer short entries if ES trades back above 1385 or if the ES moves above Monday's high.

Levels to watch today on the ES:
Resistance Above at 1385-1387, 1390-1391
Support Below at 1368-1370, 1361-1362