Trading plan for September 3, 2010

After ES made a small pullback during overnight trading, it moved back and forth to slowly march up to squeeze the shorts. At the end, the bulls won again yesterday.

Now the price has moved above the 50-day moving average line (1078.25), which will act the first major support line, and encourage the bulls to stay in their positions. Thursday’s price movement confirms our analysis yesterday: the short term low has been posted.

Even thought about 50% of the volume was missing, the price behavior still was bullish. Price could make an internal correction to smooth out the short timeframe overbought condition and keep pushing up with light volume. This uptrend could last until next week if today ES continues ignoring suspicious economic reports (employment data) in the early morning.

1093.75-1095.50 is the key range for today. A move above it will be bullish and odds will favor a push higher. Holding under this key range is likely to move ES down to retest 1075-73 or lower to 1067.50-69 range, especially if the unemployment is much worse than the street expects.

Date Added: 2010-09-02 17:56:44
Downloads: 22

Trading plan for September 2, 2010

Bulls returned big time on the first day of September. The ES was up more than 30 points on the day.

Based on the daily chart, the short term low has been posted. But it is unclear if that low (at 1037) is a B low or the first wave low of declining wave 3. The 1105-1110 range is the key to determining which it is.

If ES stays below that key range, and the holiday ends with the market in an overbought condition, we will conclude 1037 is part of the declining wave 3 process. If we move above 1100-1105 today or tomorrow, ES is likely to move higher to form a C top above the A level.

The price behavior yesterday is similar to the move of March 6, 2009, which was the bottom of the sell-off. And given the U.S. election in November we can expect the administration — including the Fed — to do whatever it can to hype the market.

However the put/call ratio reached a l0ow 0.72 yesterday, which was similar to the level on Aug. 24 when the current decline began. The ES has made a 50% retyrcement from the August high to low, a significant Fibonacci point, and closed barely above the 40-day ema. The volume was 96% up vs down on the market breadth index. Short-term sentiment is being pushed close to the overbought area. All of this could indicate a short-term top if we do not see a follow-through on yesterday's bounce today and tomorrow.

The first testing level will be the 1085-92 range today. On a failure to breakout that range ES could have a pullback day to move down to the 1072-1070 or 1066-63 area to search for support.

Date Added: 2010-09-01 22:09:46
Downloads: 92

Trading plan for September 1, 2010

ES finished August at the low end of the monthly range. Despite predictions that August would be positive for the markets, all three major indexes had their worst performance for August since 2001

There is a positive seasonal bias for this week, but so far the ES has not completed its first sub-wave of the declining wave 3, based on our Elliot wave count. Investors are reluctant to make a commitment on the buying side amid concern the economic recovery will fail. Tuesday’s FOMC minutes added to that uncertainty.

ES still holds above the major key line 1037. But every bounce from the key line gets weaker and weaker. We may see ES continue consolidating for one more day. But we should expect a breakdown through 1037 soon. It is not certain, but it is likely.

Date Added: 2010-08-31 19:49:58
Downloads: 43

Trading plan for August 31, 2010

ES moved down by stair-steps all through the day session. Even though the pre-holiday bias remained positive in the beginning, the price remains inside the first wave of the major declining wave 3. So buyers are standing aside.

Today is the last day of August. We may see a small consolidation from yesterday’s declining move or an attempt to make a little bounce. But as long as price stays under 1059, any small bounce will not change the current major downtrend. Instead the reaction to a small bounce will be an opportunity for ES to break through the key support at the 1036.50-35.50 range and move lower toward July’s low.

Date Added: 2010-08-30 20:20:25
Downloads: 46

Trading plan for August 30, 2010

WEEKLY OUTLOOK — S&P 500 CASH INDEX (SPX)

The S&P 500 cash index (SPX) closed at 1064.59 on Friday, down 0.6% for the week.

In the past three weeks, on the daily chart SPX made a 78% retracement from the July low to the August high, and closed Friday at the middle of the July range. Trading is slow in the summer, and traders are still concerned about the economic recovery, if any. As a result SPX struggled with the psychologically important 1050 line all week.

This week an extremely oversold short term condition could lead to a further bounce. In addition we are in a pre-holiday week, when market sentiment usually favors the up-side. How far this bounce can go will depend on the market reaction to important economic reports this week, especially the unemployment report Friday. (See Section 10 below for the full list of reports being released this week).

Technical analysis

The SPX attempted to breakdown the horizontal neckline of the weekly H&S pattern last week. So far the neckline has held up, and SPX bounced from the oversold condition. This indicates the price could hold for several days before it starts to attack that horizontal neckline again as it approaches the actual neckline target around the 1011-1000 range.

The price is also getting support from the 20- and 40-week moving averages. So far those 2 lines are not crossing, which would give a medium-term sell signal. The absence of that signal is encouraging the bulls to hang in there. But as soon as those 2 lines cross, SPX will once again be vulnerable to a quick, sharp decline.

Based on Elliott Wave, SPX is processing a declining wave 3. As long as price doesn’t move above 1096.50 level, the short-term trend remains down. Price could have a small bounce to help smooth out the oversold condition. But as soon as the price moves into overbought territory, the next major sell-off could start again.

Fundamentals

We had unusual negative growth in 2008-2009. In the first quarter of 2010 the economy expanded, mainly fueled by government spending and consumer spending prompted by government bonuses and rebates. But that expansion slowed dramatically in the second quarter. Economists lowered their estimates, which made the Friday GDP report look a little better than forecast, but there is not much optimism that growth will resume in Q3; rather there is a big chance the economy will slip into negative territory.

Bernanke’s speech on Friday also produced little confidence in economic recovery at least in the short term. His brief list of four possible Fed actions may help prop up the market and stimulate the economy in the future. The bulls are praying they will, but prayer is not usually an effective trading strategy.

Monthly resistance 1150 and support 1000; Weekly resistance 1100 and support 1040

DAILY OUTLOOK – S&P 500 MINI FUTURES (ESU0)

The S&P 500 mini futures contract (ES) briefly penetrated the first major support range 1050-48, and bounced from the lower consolidation range 1036-38. Buying picked up as the price returned to 1050 and ES closed above this major support line, but under the 9-day moving average line. As long as price doesn’t break below 1036.50, ES will remain inside its broad consolidation range.

Today ES could pull back down to the 1056-54 range in the early morning or overnight. As long as this range holds, a bounce up to 1071-73 should be expected, and we could see a further bounce to 1093-95 range (the maximum) later this week. After the bounce completes, the next decline should follow.

AAII report last week showed 20.74% bullish vs 49.47% bearish. It indicates the market sentiment approached oversold, and a bounce could be seen for several days

A colleague mentioned “an inverted H&S pattern” on the daily chart yesterday while we were having a cup of tea. It is possible to have a bounce here due to the oversold condition, but I can’t identify a bullish pattern now, especially I can not define which should be the right shoulder based on the price and time cycle. But there is a possibility for a bullish inverted H&S pattern if ES moves back up to 1100 line.

Date Added: 2010-08-29 14:17:06
Downloads: 46