Why I’m Looking For A Break Of Last Week’s Low

February 3, 2004
Chris Curran

Stock index futures opened the week, and a new month, with
a small upside gap, after a tight overnight range. The ES continued
the tight range until 10:00 AM ET, when the ISM Index report offered no
surprises and sparked a round of broker selling. Size wasn’t tremendously heavy
on the downdraft, but with volume being so light, any selling amplified the
effect. A bounce off of S1 support at 1,126.50 turned into the type of action
that we saw a lot of on the market’s way up: price consolidating sideways and
then a sharp move up to trap the shorts. The contract did a low-volume churn
above R3 for the next 2 hours until some broker selling shook the trees again,
and ended up giving back the day’s gains. The futures found support this time at
the Daily Pivot and position-squaring the last 30 minutes helped to preserve a
respectable gain for the session.

The March SP 500 futures closed
Monday’s session with a gain of +4.50 points, and finished in the top 1/2 of its
daily range. Volume in the ES was estimated at 675,000 contracts, which was
ahead of Friday’s pace, and right at the daily average. Looking at the daily
chart, the contract posted a spinning top and was turned back at its 10-day MA
resistance, but was able to close back above its 20-day MA at 1,133. We may also
be seeing a right shoulder forming on a head-and-shoulders pattern, with a
neckline break lining up with a break of last week’s low just above 1,120. On
an intraday basis, the contract bounced off of 60-min support twice during the
session and barring any sizeable gaps, we’ll be starting with Tuesday’s range
framed by 60-min support at 1,132.50 and 30-min resistance at 1,135.50.

Thursday morning is absent of any economic
reports, but after the closing bell, the “King of Spin,” otherwise known as
Cisco Systems
(
CSCO |
Quote |
Chart |
News |
PowerRating) will post its quarterly results. Unless CSCO pulls a
rabbit out of its hat and beats estimates by a lot more than its usual penny,
we’re probably going to continue to see this see-saw “something for everyone”
type action, at least until the market can digest this week’s Employment data. On
a more positive note, though, the daily Average True Range and the intraday
range moves continue to improve.