Exited Long Position Though Market Remains Bullish

Exited my long position (ES U-13 at 1689.75) just before the close of Futures trading this afternoon. I'm not bearish here, its just the odds of holding for more gains do not necessarily out-weigh the odds of a pullback. The ES has moved up 30+ points with hardly any selling since the highs last Friday (9/6/13). The 6th was a shakeout day and the fact that the bulls won suggests that even higher highs are likely in store. While we may get those new highs, the ES is hitting some good resistance and could sell down a bit from here. I may choose to re-enter my long position in the coming days depending on price action.

I am watching the 1657-1667 range (price refers to the ES Z-December contract currently trading 6 points lower than the ES U-September contract) now and will likely buy any pullbacks to that price area.

A close below 1657 (ES Z 13 contract) would turn me bearish and suggest a move back down to 1600 would come next. I don't expect that to happen in the near term, so I favor buying the dips at present.

I will be looking for short entries if the ES (Z December contract) trades up to 1730 in the coming week(s).

This is my speculative view looking forward, we'll see how the price action plays out...

S&P 500 Declines Almost 70 points in 3 days. Will the Bloodbath Continue?

As expected, the Fed didn't announce a reduction in QE, but Bernanke did say there was still a possibility the Fed could start tapering its asset purchases later this year. The markets sold-off pretty much any and every asset class in response.

This sell reaction was stronger and more immediate than I expected. If Bernanke and the Fed were trying to gauge what type of psychological effect that the idea of reducing asset purchases would have on the market, I think they just received a rather rude answer.

Whether the selling was directly in response to the possibility of the Fed tapering before the end of the year or if it was just an excuse to push down an overbought market, the reaction was irrational in my opinion. I had actually speculated that we might see an initial response of buying that would follow the Fed announcement, but it never happened. There was no fake-out to the upside, the selling started immediately and hasn't really let up.

While price action is bearish, I do not expect the selling to continue without at least a solid bounce to the upside first. I unfortunately got stuck in a long position that has yet to give me the right opportunity to exit. Because I believe the market will reflect on the last few days of irrational selling with a rational frame of reasoning, I continue to hold my long entry in anticipation of a bounce. Friday's rebound off the lows signals that there should be additional room to move to the upside. I will look to sell 1/2 my position with a move back above 1600 on the ES.

In my last post, I mentioned a potential bottom of any correction in the 1555-1565 range on the ES (U13). That price range is not far away so it is very possible the ES trades down to my key support before we get a decent bounce. I do expect to see buying come in before that happens, we'll have to wait and see.

Bonds
I've spoken about bonds on a few occasions in the past weeks. Each time, I was looking for support to come in and each time support has been broken. Bonds have now traded lower than the most critical support level at 110 on the TLT. This break of support was not only the 3d break of a possible support level in the last month, it was also on very high volume. This is a high odds indicator of capitulation. It will be important to see a daily close back above 110 (TLT) on Monday to gain confidence in the likelihood of a reversal.

Gold
Fear of tapering by the Fed has also sent the price of Gold lower. While the price action in Gold remains bearish,  I will be watching for a capitulation type move somewhere in the 1150-1250 price range on the YG (Q13 Gold Futures Contract). I will strongly consider  buy entries when that happens.

The bottom line is that fear is rampant across most asset classes and when fear grips the minds of market participants, its often the time to take the reverse bet. I'm not suggesting to get bullish for any extended period of time, but I expect positive price action in the near-term.

Levels to watch on the ES (U13 Sept Contract):
Resistance above at: 1596-1597, 1601-1602, 1611-1612, 1618-1619, 1623-1624
Support below at: 1570-1571, 1565-1566, 1557-1558, 1554-1555

Market Bullish Ahead of the FOMC Announcement

The immediate-term price action is quite bullish and I wouldn't be surprised to see the ES approach or even retest the May highs. In the bigger picture however, I see the market in a topping pattern and that keeps the bearish outlook alive. I do expect to see lower lows as we trade into the summer.

As I write this and the ES trades near 1645, I am more or less neutral. I will be watching the market reaction to the FOMC announcement today (2.00 pm EST) and the press conference with Ben Bernanke (2.30 pm EST).

Expectations:
Fed will not taper. $85 billion in asset purchases will continue.

The catalyst that started the selling back on May 22nd, was the comment by Ben Bernanke who said, "If we see continued improvement and we have confidence that that's going to be sustained, then we could in the next few meetings ... take a step down in our pace of purchases." 

Since this taper comment, Japanese stocks traded down as much as 20%, emerging markets were down 10% and the S&P 500 was down 5%. All this because Bernanke suggested the Fed will create less than $85 billion dollars per month at some point. But lets get real, the Fed is not going to do this any time soon. $85 billion per month in asset purchases will continue and here is why:

• Unemployment rate has not reached Fed target of 6.5%
• Inflation levels remain subdued. 
• The Fed balance sheet is excessive, it has been excessive and it will continue to be excessive. Tapering will not change this.
• The price of Treasury Bonds is approaching important support levels. The Fed does not want to see selling in treasuries continue at this point. Bernanke will make sure this does not happen. This alone guarantees (in my opinion) that the Fed will not taper at this time.
• Industrial and tech companies need to see an economic recovery in the developing world in the 2nd half of the year. Tapering is not the answer and without a recovery in the developing economies, a world wide economic slow down could ensue.

So what does that mean for equities? I really don't think it means much. Continuing to add $85 billion of liquidity into the markets is enough to prevent sellers from reeking havoc on the markets, but it isn't enough to to surge the markets to new highs from here. We have already seen equities bid up ahead of the FOMC announcement, so some of the bullish sentiment that comes along with continued easing, is already priced in. If the Fed does happen to reduce asset purchases (or taper), you can expect heavy selling to commence. Like I said earlier, this is a very unlikely scenario at this time. 

The market remains elevated (ES is up 23% since November 16th of last year) and price action over the past month continues to signify a potential topping pattern. It would take a surprise increase in the level of asset purchases by the Fed to sustain this remarkable bull market without seeing a more significant correction first.

We'll see what kind of language we get from Bernanke. There is still room for the market to move a little higher before more sellers come back into the picture.

Levels to watch on the ES (U - September 2013 Contract):

Resistance above at: 1655-1656, 1659-1660, 1664-1665, 1674-1675

Support below at: 1635-1636, 1629-1630, 1607-1608, 1592-1593.

Looking further ahead, I am expecting a bottom in the 1555-1565 range. But we'll listen to what Ben has to say before getting too ahead of ourselves...

Price Action Shows More Signs to Support the Bearish View

The major indexes, the Dow, S&P 500, Nasdaq and Russell 2000, have experienced two failed rallies in the last five trading days. While the market is still technically bullish, I don't know when I have seen price action that produced topping tails as attractive as these.

I added to my short position this morning and I remain confident in the bearish view looking forward.

To maintain the bearish view:
1) Today's high on the ES (M June 2013 contract) of 1672.75 needs to hold.
2)  The ES (M June 2013) should not see a daily close above 1660-1661.

While I am bearish in the immediate-term, I am not expecting a huge correction.
Support levels I am watching on the ES (M June 2013 Contract) are:
1625-1626, 1607-1608.
If sellers push price further down from there, for example through 1605, the ES could sell down into the 1580s pretty quick. Furthest downside target I can anticipate is in the 1555-1565 price range. Too early to talk about that though. I'll wait for sellers to support my bearish view this week.

Short New Highs and Buy the Dips

The bullish run continues as shorts get squeezed. Until that changes, no reason to be afraid to buy the dips. At the same time new highs make good spots to consider shorts. The S&P 500 cash index is trading at all time highs and although it may continue to go up, it won't go up in a straight line.

The ES (M June Contract) will likely test the 1635-1636 level in the near-term and this will be another new high to consider shorting. The ES Continuous Futures contract is not trading at all time highs, but it is trading at the highest level since September of 2000, more than a decade ago.

I will be looking for shorts once the ES trades above 1635. I could see the ES trading as high as 1647-1648 before the week is over, but will be looking for signs of selling anywhere in that 1635-1648 range. If I am wrong on a short trade, I will exit quickly. I don't mind taking several small losses in an attempt to hit one trade for a big gain. The key is patience and timing on those shorts. For example, shorting a new high following failed attempts to move higher gives you a better opportunity to use a small stop loss without it getting hit than shorting the middle of a price range.

I do think the markets will make a high inflection point and begin a correction before May is over and it could happen at any time. But like I said earlier, market remains bullish and I continue to prefer buying the dips. Eventually buying dips will stop working, but until it does, I'm a buyer at support.

Additional signs that a May correction is very possible:

• Bonds are currently trading at important support levels and are looking poised to rally. Stocks would likely move in the opposite direction in this case. I expect support to hold on the TLT at 119-120 and for a rally to commence off this support. 119-120 will need to hold over the next week for my bond rally theory to hold. 
• This week's sentiment survey shows that bulls are up by 9.8% to 40.2% overall versus 27.4% for bears. This is the first time since the beginning of April that bulls have outnumbered the bears in sentiment. This suggests that the recent short squeeze may be culminating soon.

Levels to watch on the ES (M June 2013 Contract):
Resistance above at: 1636-1637, 1648-1649, 1651-1652
Support below at: 1618-1619, 1611-1612, 1599-1600

New High Rejected on the First of May, Might It Be Time to Go Away?

We got the rally higher that I expected, it just happened a little quicker than I thought. The latest new high on the ES (M June 2013 Contract) came in right at the 1595-1596 resistance I noted in my last post. From there markets sold off and, yes, it happened to be the 1st of May. I am beginning to entertain a more bearish stance from here and prefer selling rallies right now. To maintain this bearish outlook, the 1588-1590 (ES) resistance needs to hold in the short-term. This level also makes a nice price to consider entering a shorts if you're not already short.

I'll be watching the the market reaction following this morning's ECB rate decision (7:45 am EST). If the market reacts positively and closes the day strong, I'll reconsider my preference to sell rallies.

In any case, I'm speculating that the time to sell the markets "May" be upon us. Today's action will be important in establishing a market bias looking forward.

Levels to watch on the ES (M June 2013 Contract):
Resistance above at: 1583-1584, 1588-1592,  1596-1597, 1607-1608
Support below at: 1569-1571, 1562-1563, 1551-1552, 1539-1540

Market Hitting Resistance, But New Highs in the Coming Week(s) a Likely Scenario

To begin the week, watch for continued consolidation/choppy action between 1570 and 1583 on the ES (M June 2013 Contract). Price will need to break-out in one direction or the other and I am favoring the downside in the short-term. I expect price to break down on Monday or Tuesday, so short positions look interesting on any failed rallies above 1580 ES. When selling does take hold, first target to the downside will be 1563-1564. If support does not hold there, 2nd target to the downside is 1546-1547. I expect one of these support levels to hold and for buying to then drive the market up to another new high in May. This should mark a genuine exhaustion point for a very extended market. And as cliche as it sounds, I expect the "Sell in May and Go Away" to play out again this year. We might have to wait a couple of weeks into May for this to happen, but I do expect to see at least a 6% correction from there. Of course we'll have to watch for pattern and price action to support this theory, but for now, that's one of my higher probability scenarios.

Signs that support this viewpoint:

• Bonds setting up for a price move higher (yields lower) in the coming weeks. TLT is looking bullish which will set up for a nice sell in equities. Watch for 120-121 (TLT) to hold as support. A continued move higher from there will support a risk-off mentality and send stocks lower.
• GDP for the first quarter came in at 2.5%. Though this is an improvement over the 4th quarter, it is below consensus estimates of 3.1% and thus is not a bullish indicator in what is an extended market.
• Bearish sentiment remains high as many investors expect a correction. This is often a contrary indicator as the crowd may continue to get squeezed. In the short-term this would support my view that new highs are around the corner. Watch for sentiment to move back into the bullish camp as a potential indicator that it "May" be time to sell the markets in anticipation of a Correction.
• Although the Transportation Index ($TRANS) has seen gains over the past 6 trading days, it remains in a downward trend since early March. $TRANS remains above fair value and could easily correct quite a bit more towards November 2012 prices. If the $TRANS is headed lower, the S&P 500 is likely to head in the same direction.  

In summary, there are plenty of reasons to speculate the potential for a correction in the markets. Just remember that the charts remain bullish and until this changes, expectations of a break of the trend are only speculation. Until then, I remain bullish in the overall picture. Time will reveal the truth.

Levels to watch on the ES (M June 2013 Contract):
Resistance above at: 1583-1584, 1589-1591, 1595-1596, 1607-1608
Support below at: 1569-1570, 1562-1563, 1547-1548

The Recent Selling Pressure May Seem Threatening, But Overall Market Remains Bullish

The market is showing warning signs that a correction may be in the works, but there is no confirmation yet. Following last week's all time new highs on the S&P 500, market action has been negative. Today marks the third day in a row the S&P 500 is trading back below its 2007 high, but we have not seen a lower close on the ES since Monday's large sell-off. It is important to note the relatively high volume that has accompanied the recent selling. When you see a market at or near all time highs, you have to be weary when seeing selling pressure at high volume. Ultimately though, its too early to be overly bearish. There has yet to be a confirmed break in the overall up-trend on the ES dating back to last year and although there is increased volatility now, the selling has been more or less contained thus far.

A close below 1536 this week on the ES will help to confirm a bearish call looking forward, though there is still a good amount of support at numerous price levels all the way down to 1500 ES. For now I'm still a buyer at these support levels. As I keep saying, a correction could begin at any time, so obviously it is important to have a pre-defined exit strategy in place in case a trade goes in the wrong direction.

Levels to watch on the ES (M 2013 June Contract):
Resistance above at: 1567-1570, 1580-1582, 1589-1590
Support below at: 1536-1537, 1531-1532, 1521-1522, 1501-1502

And its Risk-Off to Begin the New Week

I've been waiting and waiting for a signal to hold a short over the past week, but the upward consolidation has been persistent for the past eight trading days. Instead of revealing a high odds inflection point at which to enter the market short, futures gapped lower at the Globex open on Sunday, leaving the prudent shorts behind. You would have needed to be a bit aggressive to be short ahead of this drop. In any case, the market is positioning itself to gap significantly lower as the stock market opens this morning. First target to the downside for the ES will be the previous highs at around 1525 (ESM13 June Contract). Look for support to come in anywhere between 1515 and 1525. I will consider long entries in this range. If the ES sees a bounce before that happens I will look to enter short following a move back up above 1550.

Several factors influenced weakness that began on Friday. First there was concern and anticipation over how finance ministers of the 17 members of the Eurozone would negotiate a bailout deal for the island of Cyprus. Second was the US consumer price index, which jumped higher and rekindled some concerns about inflation. Third, US consumer sentiment took a surprise plunge to 71.8 vs about 79 during the last two weeks of February. The expectations component of the report fell 8.5 points to 61.7 which is the lowest reading since the debt ceiling debacle and US ratings cut in the third quarter of 2011. 

By the end of trading on Friday, there was no bailout deal in place for Cypress.

By the time Futures markets opened on Sunday, it was risk-off in reaction to an unprecedented decision by Eurozone leaders to make Cypriot bank depositors responsible for part of the bailout of the Island of Cyprus. You can find an interesting take on the situation in the article Cyprus: the world’s biggest “poker game.”

A Cypriot bank holiday today will limit the immediate reaction. The deposit levy (the tax on depositors) - set at 9.9 percent on bank deposits exceeding 100,000 euros and 6.7 percent on anything below that - will be imposed on Tuesday, if voted through in parliament.

So, we may see a bit of a subdued reaction or consolidation following the first hour or so of trading today. If the ES does manage to see a bounce later, it will likely be a good shorting opportunity. If we see consolidation later today, I will probably favor selling the upper part of the consolidation range for some day trades. Other than that I will consider long entries where-ever the ES finds support in the 1515-1525 range. We'll see how this plays out into Tuesday and then into Wednesday with the FOMC announcement and Chairman Bernanke's press conference.

Levels to watch now on the ES (M13 June Contract):
Resistance above at: 1542-1543, 1548-1550, 1553-1554
Support below at: 1524-1525, 1519-1520, 1514-1515

Bullish Ways Continue to Push Market Higher, But a Hint of Selling Emerges

Since closing above my 1511-1512 resistance level last Friday, the ES has seen three consecutive higher highs and two higher closes. This type of action certainly negates any short bias from a technical perspective, but it doesn't turn me bullish. The ES briefly traded above its 2007 highs this morning, but has since traded back down below the 1519-1520 level. The SPY and the S&P 500 cash indexes haven't yet made it to their 2007 highs, but they did trade right up to a significant inflection point dating back to December 11th 2007 before turning back down.

Its hard to be anything but neutral in the immediate term. Volume and volatility have been virtually non-existent. Following the brief move to new highs this morning, we saw the first prominent sign of sellers entering the market in a while. Even though volume remained subdued, I think there is a good chance for lower prices as we head into the end of this week. We'll need to see the 1518-1520 price range hold overnight and into Thursday morning to gain confidence in this idea.

In this low-volume, grind-higher market it is difficult to find quality shorts to hold for sizable gains (well that is because there haven't been any sizable gains to the downside yet this year). In that light, it may be more prudent to wait for the first decent pullback to buy into, rather than try and pick a short-term top to hold a swing trade (when I say swing in this case, I mean three days in duration at the most). That being said, I will continue to look for shorts in the 1519 price area on the ES. No guarantees we will see any significant selling come in, but I like the chances of seeing lower prices into the end of the week. I'll be pretty quick to jump back onto the long side again if we do see a small sell-off here. We'll have to wait and see.

Levels to watch on the ES (H, March 2013 Contract):

Resistance above at 1519-1520, 1522-1523

Support below at: 1510-1511, 1500-1501, 1491-1492

GDP Disappoints, Fed Minutes Offer no Surprises

GDP came in on Wednesday morning at a significant miss of expectations showing that the economy weakened in the fourth quarter, with a minus 0.1 percent annualized pace.

FOMC minutes reveal the Fed's point of view with no surprises:

• Growth in economic activity paused in recent months
• Inflation has been running somewhat below the Committee’s longer-run objective
• If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability
• The exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored
• Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances. 

The thing that is genius about Bernanke and the Fed is that they have mastered the rhetoric which describes their policies to influence the markets in a positive way. Continued loose monetary policy is bullish for the markets and even the idea of tightening monetary policy can be viewed as bullish because that would mean employment is up and the economy is recovering. Fed minutes will likely be a non-issue for a while as the market already knows what to expect looking forward. Of course any surprises would certainly influence the markets, but expectations for now are that there will be no surprises.

I am officially bearish in the short-term. I believe 1506 on the ES is the short-term high (which happens to be right in the middle of my resistance range from the last post). I will now be looking to short any rallies. I'm looking for a bounce off the 1495 level on the ES and will look for shorts between 1500 and 1504. Consider stops on any shorts if the ES confirms a move above 1512. First target to the downside is 1487-1488 and second target is 1479-1481. I will consider longs again if the 1480 support holds.

Market Extended. Expect Pullback

The ES (E-mini S&P 500) is up almost 120 points in less than a month and in that time the two largest declines were from the high on Jan 4th for 17 points and from the high on January 11th for 14.75 points. The market is extended and is due for at least a small pullback. The ES is testing the 1500 level while the S&P 500 cash index has already closed above the psychological level. I like shorts up around the 1500 level on the ES, though there is a good chance we see a pierce of that level. We'll see how price action is this morning. I will post in the comments if I do take a short.

While I am speculating that we are due for a correction to begin this week (at least a small one), markets remain bullish and we need to see some confirmation before gaining confidence in the trade. When aggressive, or entering a trade early, I want to see the trade go in my favor quickly. If it does not, I will exit the trade before experiencing any significant heat. Bottom line is to plan the exit strategy beforehand based on different price action scenarios, that way emotions don't come into play and I know how to respond ahead of time.

In any case I am anticipating a downturn and I have listed some of the reasons why below:

• Market over-extended without seeing any significant pull-back.
• Unrest in the middle-east. Riots in Egypt could be the pre-cursor to an "Arab Spring II."
• The market may be moving in the opposite direction as Apple right now, but that is likely to reverse.
• The Nasdaq index is showing signs of fatigue, much of it to do with Apple, but it has to at least be considered as a potential leading indicator.
• FOMC minutes to be released on Wednesday. If there is any mention that quantitative easing could or should end early, that will provide an excuse to sell this over-extended market.
• Other news releases this week to be aware of, GDP on Wednesday, Jobless Claims on Thursday and Employment Situation on Friday.
• Lets not forget that while the stock market may be at levels not seen since before the recession began, the employment situation has only managed to regain half the total lost jobs. That math doesn't quite add up and leaves room for concern.

That's it for now, lets see how this week begins. I will be looking for short opportunities as the ES makes any new highs. If trading multiple contracts, easing into a short trade here in the upper 1490s isn't a bad idea either.

Levels to watch on the ES (H, March 2013 Contract):

Resistance above at 1499-1501, 1505-1506, 1509-1510

Support below at: 1491-1492, 1486-1487, 1479-1480, 1470-1471

Low Volume, Low Volatility, Higher Highs, As Expeceted

The year has begun much as anticipated with low volume and small price ranges throughout the markets. Price continues to churn upward, even if the pace is gradual and the gains minimal. This morning marked the largest price move relative to time (ES jumped 8 points in 30 minutes on new jobless claims data) that we have seen since the first trading day of the year.

Since 2013 began with a gap-up across most markets, the ES has been consolidating in a slight upward trend making higher highs (highest prices since 2007). I expect continued higher highs before the markets eventually turn down to test the 2012 closing prices.

ES (March Contract): up-trend denoted by yellow lines. Previous multi-year highs denoted by white lines.

You can see that with today's rally, a potential short opportunity is presenting itself. I like shorts in the 1480-1482 price area (potential for a pierce higher). You could look for a move back down to the bottom of the range, but I'll probably look for about 10 points on that short.

Consider long entries on a pull-back to the 1468-1472. From there I like the up-trend to continue and will expect 1490 ES (H March Contract)

So my bias remains bullish and I favor buying the dips. My bullish bias will change when we see another wave of fear enter the markets.  This will happen when debt-ceiling talks command attention once again (at some point in February).  Any contention between congress and the white house will result in at least some short-term selling across the markets. This is likely what will bring index prices back down to test the 2012 closing price levels. I will talk more about this in due time.

Rally Off Lows Now Hitting Resistance

As I said would happen in my previous post, markets rallied right into the Thanksgiving holiday. More buying  pushed price even higher during Friday's shortened trading session on low volume. This morning it looks like Markets will open a little lower, having given up Friday's end-of-session gains. 

I would be comfortable selling any rallies from here (ES currently trading at 1400).

Resistance above on the ES (Z December Contract) at: 1402-1403, 1406-1407, 1413-1418.

If the ES does continue higher and trades as high as 1418 without pulling back first, consider it a gift-wrapped short opportunity.

This market will pull back, and as cliche as it sounds, continued talks regarding the Fiscal Cliff should provide the catalyst. 

Support below on the ES at: 1393-1394, 1387-1388, 1375-1377, 1365-1367.

The next best buying opportunity will be a move back down to the mid 1360s. From there look for the rally to continue into the end of the year. That's what I'm looking at for now, we'll see what the price action tells us from here...

Short-Term Bottom In

Friday's action saw massive buying come into the market following another lower low on the ES. Oversold conditions begged for an excuse to rally and optimistic remarks from Obama and Boehner regarding the fiscal cliff provided the catalyst. The ES rallied almost 19 points in just over an hour and finished the day back over 1360. I Expect buying to continue as we head into this week and the Thanksgiving holiday. If you're not already long, I'd be very confident in buying dips from here.

For some targets to the upside lets look at some key resistance levels.

Resistance on the ES (Z December Contract):

1367-1370, 1386-1388, 1394-1397.

Consider taking profits on long entries at any of these resistance levels. Even though I am bullish now in the short-term, I will consider shorts again as the ES approaches 1400.

That's what I am looking at right now, lets see how the market opens...

Friday's Rally Gets Smacked Back

Prior support in the mid 1380s (ES Z Dec Contract) proved to be strong enough resistance to stop a momentous rally on Friday. Strong enough in fact, to smack the market back down with conviction, faster than it rallied earlier.

So what next?

The action on Monday (a limited volume holiday) was meaningless consolidation. I continue to favor the upside in the short-term as long as the 1372-1373 support (which happens to be the 61.8% retrace of Friday's rally) holds. Its probably a 50/50 proposition right now. I prefer long entries though, as the risk to reward ratio is favorable to the upside. But given the weak market, longs have to be taken with caution. I wouldn't defend any moves below 1372. If the "rally" from here is to play out, the ES still needs to break above the mid 1380s resistance. That will provide the potential to run back up above 1400 and possibly to 1405-1410. If the ES does reach that price range, I will look for short entries from there. Overall, markets remain in a down-trend and we must await further price action to signal something different.

What to Expect Following the Election

We got the move up to 1430 ES that I talked about in my last post and sellers came in and sold those gains as I expected. Key resistance remains at 1430.  I will be looking for a move up to test last week's high of 1431.50 and possibly break it. That should create another good shorting opportunity. Assuming resistance does hold in the lower 1430s, I will be looking for a  move lower regardless of who wins the election. Initial target to the downside is the mid 1380s. From there I will be looking for the market to find support and eventually form a pivot low that can be bought and held into the end of this year. We'll have to wait and see how price action behaves over time following the election before I get into any more detail there.

The markets should sell off regardless of who wins the election. Markets are already at four year highs and are showing signs of weakness following the announcement of QE3. In the case of a Romney win, assumptions of a change in Federal Reserve monetary policy will cause the markets to sell. In the case of an Obama victory, fear of tax hikes will cause the markets to sell. There is also a high possibility that the election will be close. Any contention or litigation questioning the legitimacy of the winner will cause more uncertainty in the markets and again will influence selling. But in both cases I believe that selling will likely be short lived. We remain in a loose monetary policy environment that favors low interest rates, inflation and devaluation of the US dollar. This is not going to change regardless of a Democrat or Republican victory. The Fiscal Cliff will be less of an event than many expect and markets should  resume their risk on mentality.

For today, look for a range bound market with potential to fade moves in either direction. I am biased to the upside as the election results come in, but like I said, resistance is strong at 1430 ES. A move up to or slightly above this level should provide a great shorting opportunity. I will be looking for the market to sell off below 1400 from there or following the election. First target to the downside is 1385-1388. Good luck and get out there and vote if you are eligible... 

Market Showing Strength and Could be Signaling Start of Next Leg Up

Although its been more than a week since my last post, my outlook has not changed, I remain bullish overall. We saw slightly lower lows into the end of last week, but the markets have since found support and are moving higher. If today's gap up holds and the ES closes higher, it will mark the largest two day move since Bernanke announced the open-ended purchase of mortgage backed securities over a month ago and would mark an inflection point off of the lower trend support of the up-channel dating back to the June 4th lows. This could be a signal that the next leg up has begun, a move that should bring the ES to at least 1500. We would need to see consecutive daily closes below 1420 on the ES to make me reconsider my long bias. For now, I continue to favor buying the dips.

Levels to watch today on the ES (Z Dec Contract):
Resistance above at: 1444-1446, 1449.50-1450.50, 1454-1455
Support below at: 1438.50-1439.50, 1434-1435, 1430-1431

Levels to Watch in Terms of Buying a Dip

The S&P 500 is showing a classic bull flag pattern right now as we consolidate here between 1456 and 1459 on the S&P Cash Index. There is support directly underneath (1450 on the ES Z December Contract for Futures) which makes this very tempting to buy if you are not long already. At the same time there is risk of taking heat on this trade if the bull flag pattern fails. Still a good long depending on how much heat you are willing to take.

Next support levels to watch on the ES (Z December Contract):
1448, 1444-1445, 1441-1442

These are all potential levels to buy (the dip), but if the ES manages to sell down to 1441-1442, that will be a very attractive level. Can't count on that though, we'll have to watch and see how this plays out.

The other option is that support holds at today's lows and the ES rallies up another leg from the current bull flag.

Support Holding, Market Looking to Extend Overnight Gains

Markets strong this morning following Europe's lead as there was strong demand for Spanish T-Bills even with high yields. Support in the lower 1360's held up overnight on the ES and I favor buying the dips today. Keep in mind that the ES still needs to break above 1377 and stay there to confirm today's strength. I like longs if ES ticks back down around 1366.

Levels to watch today on the ES:
Resistance above at: 1376-1377, 1383-1384
Support below at: 1365-1366, 1361-1362