After Three Down Days, Be Alert For This

October 24, 2003
Chris Curran

The December S&P 500
futures (SPZ and ESZ) opened Thursday’s session with another gap to
the downside, after more downbeat earnings and guidance reports, and an absence
of any positive surprise from the Weekly Jobless Claims. Brokers stepped up with
the mind to buy off the open, closing the gap in the first 30 minutes, and then
ignited another follow-through push that tested but failed to break the Daily
Pivot at 1,031.25. Gravity took over, and the contract fell down to test the
lows, giving some great intraday volatility in the first 2 hours. A lunchtime
grind back up through the Pivot to the session’s high gave way to afternoon
position-squaring ahead of MSFT’s earnings report.

The December S&P 500 futures closed Thursday’s
session with a loss of -2.00 points and finished just about mid-range. Volume
in the ES was estimated at 693,000 contracts, just ahead of Wednesday’s pace and
above the daily average. Open interest did decline on Wednesday’s slide, which
is more indicative of long liquidation than a lot of new shorts coming in
yet. On a daily basis, the contract opened below its 20-day MA and settled just
beneath it, however, the S&P cash was able to hold its 20-day MA and also the
38% Fib retracement of the 9/30-10/15 up move (see chart).

On an intraday basis, the 60-min continues to
form a sloppy bear flag pattern, but settled above its 200-period MA. The 13-min
ES chart closed off of a bear flag break in the last 15 minutes of the session.

Friday will put the brunt of earnings season
behind us, and at the time of this writing, MSFT was peeing on what was left of
anyone’s earnings Cheerios. The large closing discount to the cash SPX also
gives a good probability of more downside early, but be alert for some
retracement back up after three down days in a row. If you’ve had a good week,
reward yourself with an early start to the weekend. If you haven’t had such a
great week, don’t come in with revenge on your mind. The market will always be
there next week.