2013-02-25

$ES_F : 1518-1528 : Market Recap


Round II bulls got on the chin. Bull-1 Bear-1: Consolidation range forming 1495-1525

This is classic topping pattern/consolidation. The bias has again shifted to down side. Breakout from range to give resolution.


Blame the Italian's or Fiscal Cliff Nonsense Part II or growling bears but today was exact opposite of what happened on Friday. You will see from the chart, on Friday my chart had my projected high of the day as 1510 and market trading significantly above it so much so that projected low of the day is not even visible. Today you have my projected low of the day 1518 and market trading well below it. Same pattern, mirror image. But overall this is a good development. From my experience, this flip-flop signal going from bear to bull to bear imply significant pause points for the market and possibly a reversal signal. We now have a well defined range 1495-1525 and breakout from the range will provide a good trade with stop above the range. Volatility has improved and touching 17. Volumes are returning to the market. Somehow it feels it is no longer the one-way slow grind up market any more. Here is 5 minute chart of today's day session.


I came in the day cautiously confused as per this trade plan. Overnight the markets were very bullish and had broken the line in sand for the bears at 1518. It was increasingly looking as if the markets would break 1530 today. After opening strongly on good volume, I went a probe long first green arrow (small position to test the market with tight stops) and I could manage to exit it immediately after day session high was printed second red arrow. I was not expecting for my trade plan orders to be filled but pretty soon market started dropping and filled my orders on a quick reaction (next 4 green arrows). I was expecting a move up to 1514 for gap fill. There were two high volume bars in that area marked with grey oval. This kind of told me that may be I got the low of the day and I can hold my positions. I was expecting a quick move up to VWAP but the markets reaction was not consistent with rejection of the low. After it failed to reach VWAP even after 30 minutes and started stalling near 1516, I decided to sell at minor loss last red arrow.
Market started tanking soon after that on Italian election speculation and other news. But I think the main reason was that we are in a topping area and this market needs a healthy correction. I was looking for short set-up and have taken up positions in swing account using options with 1530 stop. Comments section of the trade plan has details of my discussion/trades.

So what do I see now? After today's action, it is clear that shorts have not given up completely even after a bruising punch on Friday. We also not have a good established trading range and consolidation area. I expect the breakout will be on down side and possibly will take S&P to 1470 area. My two projections for the support are 1489 and 1466 and I would expect markets to stabilise somewhere between the two. As of now the market looks bearish and there is no specific long set-up in play. The on going measured move long set-up is broken but short set-up still needs to confirm.  Next level of support exist in 1488-70 area for longs.

I reduced some long positions in GOOG and HLF in my stock portfolio which is now net short.

Day session range was 30pt and overall range has been 30 pt. Last we saw such range was in November 2012.