Here’s Why Friday’s Opening Should Be Lively

January 16, 2004
Chris Curran

The
March SP futures opened Thursday’s session with a small upside gap,
mainly due to
(
IBM |
Quote |
Chart |
News |
PowerRating)‘s early earnings release and beating of estimates. The
contract gave a nice TICK fade (see chart) off the open that precluded an
avalanche of broker selling, led by Morgan Stanley and Merrill Lynch, that drove
the PREM to a big enough discount to attract the program traders. Despite the
heavy selling the first hour, which felt more like long liquidation than
aggressive shorts coming in, the selling simply dried up just above Wednesday’s
session low. Like we’ve seen more often lately than not, the contract began a
grind back up to positive ground. The post-lunch period brought back some
pockets of selling, but again, it wasn’t enough to keep the futures
down. Overall, it was another “backing and filling” type day to work off the
excess that can send this market still higher.

The March SP 500 futures closed
Thursday’s session with a gain of +2.00 points, and finished at another new
contract high. Volume in the ES was estimated at a heavy 876,000 contracts,
which was ahead of Wednesday’s pace and above the daily average. Looking at the
daily chart, the contract tested its 10-day MA support at 1,123 once again and
posted a dragonfly doji for the day. The new high continues to form Stochastics
divergence, but keep in mind the strength of the uptrend and don’t rely on
divergence alone as a sell signal. On an intraday basis, 60-min trend line and
MA support helped drag the 30-min and 13-min charts back above 15-period MA
resistance (now support). The VIX is coming down to test its 1/8 level just
above 15, where it reversed the last time.

I’m not looking for much
overall from Friday’s options expiration, although we do have some reports that
could keep the first hour or two lively. Market bellwether GE’s earnings report
will start things off, followed by Business Inventories at 8:30 am ET. Those
are followed by December Industrial Production and Capacity Utilization at 9:15,
and then the Preliminary Michigan Consumer Sentiment Index after the open at
9:45.