Emini futures outlook

All ears are listening when Fed governors speak. Never before have we seen
the effects of intraday price explosions / implosions spawned from the lips of
Fedspeak that have erupted numerous times this year. Tuesday’s afternoon all-out
assault on the hapless bears marks one more Fed-driven event, and we can expect
to see many more ahead inside Bernanke’s regime.

Chart 1: ES (+$50 per index point)

S&P 500 opened at R1, sold off hard to S1,
limped upwards to the pivot and exploded in the afternoon to finish at the R2

That is sure one heckuva roundtrip intraday!

The 1400 level is all but given to be hit
today. Index options cease trading tomorrow and settle on Friday’s “fair value”
open, so we could see more volatility today based on that alone. With FOMC
minute’s history book slated for release at 2:00pm, the afternoon should be

Chart 2: ER
(+$100 per index point)

Russell 2000 futures likewise fell from R1 to
just below the pivot, before similar ascent to R6 (laugh) at the close. Vertical
ascent from whatever catalyst caused the ramp has this index with 800 easily in

Chart 3: ES (+$50 per index point)

S&P 500 futures registered a third consecutive
session of lower than average volume in the Dec futures contract. About 60% of
the 1.4mil contracts traded at recent highs is all that cleared yesterday,
Monday and Friday as well.

Media reports of a $4 billion short trade
covered to squeeze tapes does not register in the emini futures at all, nor do I
see evidence of that in the SPX option chain. Yes, the indexes went up in
pole-vault fashion yesterday afternoon, on anemic volume. No consolation to
shorts who were burnt to a crisp, but volume studies are way over-rated for
intraday trading usefulness.

All we can make of this volume chart is the
fact that price action is soaring right now on thin air.

Chart 4: ER
(+$100 per index point)

Russell 2000 futures mark the same low-volume
measure that ES did. Yesterday’s ER traded 147,000 contracts, somewhere near 70%
of a higher volume session marked by 200,000+ contracts.


FOMC minutes this afternoon, highly watched econ reports Thursday morning
followed by the Philly Fed at noon are enough to keep the tapes rocking into
Friday. When option expiry sessions get pushed from outside catalysts, they tend
to make some dramatic swings as worthless contracts suddenly inflate in value
and vice-versa the other side.

Traders left scratching their heads over how
far and/or high this current rally can extend need refer back to 1999 for
comparison. When short-term manias entrench and fund managers are forced to
follow, the situation feeds itself in perpetual motion. The only thing(s) that
can derail continued upside action is/are unknown outside events. In other
words, this market would need be shocked to its core before bullish bias is
broken. Unless something dramatic happens, look for the balance of 2006 to be
sideways = higher straight thru.

On a personal note, this is a very busy time of
the year for me. Thank you for all of the emails asking where I’ve been…
promise to contribute two – three times per week following the Thanksgiving

Look for active to wild price action potential
thru the next two days. We might see a spurt of volatility here that’s been
withering away with a VIX down to 1993 lows. Lots of potential for extreme price
swings, so let’s be aptly prepared!

Trade To Win

Austin P


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