Be Alert For A Gap And Trap
The September S&P
futures (SPU and ESU) opened Thursday’s session with a +5.50 point
gap to the upside. Weekly Jobless Claims were better than expected, continuing
to come in under 400,000, but last week’s number was revised above 400k. The
size of the gap and the weak closing PREM gave a good probability of at least
1/2 the gap to fill. Merrill Lynch, Morgan Stanley, and local sellers off the
open managed to close 1/2 the gap, but the TRIN taking a bullish dive was the
writing on the wall as the contract reversed sharply. Some of the brokers got
stuck and had to buy, snowballing the effect to the high of the session. The
10:00 Leading Economic Indicators report offered no surprises and the futures
retraced a bit off the highs and hovered around R2 at 1,007.
Just after 11:00 ET, Goldman Sachs, who had been
a light seller all morning, began offering 300 contracts at a time without
trying to conceal the size and without regard to price (normally, the most a
broker will show is 100 contracts at a time), sending the futures into a
freefall. The contract bounced off of Wednesday’s close and was looking heavy
again until the 12:00 noon Philly Fed report came in higher than expected and
saved the day. The lunchtime lull set in and the futures chopped back down to
test and hold the Daily Pivot at 999.50, just above the session lows. A late
short-covering push ran out of steam at the opening price of 1,004.50 and the
contract settled just under R1 at 1,003.
The September S&P 500 futures closed Thursday’s
session with a gain of +3.00 points, and finished in the middle 1/3 of its daily
range. Volume in the September ES was estimated at 587,000 contracts, which was
ahead of Wednesday’s pace but still at that slow summer pace. On a daily
basis, the contract posted a gravestone and was still unable to close above that
7/31 high resistance. On an intraday basis the ES came to rest on its 60-min
trendline for the 3rd session in a row, and broke almost-perfect 13-min and
3-min symmetrical triangles (see chart). The 1-min 3-Line Break chart closed
with a short bias and a Break Price of 1,002.50. The VIX posted an inverted
hammer after its fourth session close below the 20 mark.
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On Friday morning, the economic calendar is zip,
nada, and zilch. With the weak closing PREM, be alert for a gap and trap on any
gap up. Enjoy one of the last weekends of the summer season and remember that
the market will always be there on Monday.
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Please feel free to email me with any questions
you might have, and good luck with your trading on Friday!
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