How To Prepare For The Next Two Days

August 14, 2003
Chris Curran

The September S&P
futures (SPU and ESU) opened Wednesday’s session with a small +2.50
gap to the upside after a higher-than-expected Retail Sales report.Â There had
already been a lot of chatter the past few days about the report coming in
higher, so the news wasn’t really much of a surprise. The size of the gap and
the intraday Butterfly pattern (see below) gave a good probability of a “gap and
trap” open.Â The TRIN opened low but quickly moved up above 1.0 and provided a
good filter for avoiding long trades the 1st hour.Â Locals were sellers off the
open to quickly fill the gap before Merrill Lynch offered good size at 988.50 to
hit stops and break through the overnight low.Â The Daily Pivot at 977.75
provided good support for the next hour, until the yield on the 10-year note hit
the magic 4.5% level again, and pressured the futures down to S1 support at
983.25.Â The contract made one last dip before starting a lunchtime
counter-trend rally back up to the Daily Pivot, but ran out of gas right before
the bond market close.Â The futures slid to a new session low, before some
closing short-covering was able to lift the contract back into the middle of its
range.

The September S&P 500 futures closed Wednesday’s
session with a loss of -5.75 points, and finished in the middle 1/3 of its daily
range.Â Volume in the September ES was estimated at 477,000 contracts, which was
ahead of Tuesday’s pace but still below average.Â On a daily basis, the contract
posted a Dark Cloud cover as well as a lower Market Structure High, but was able
to hold its 20-day MA at 982.50.Â The VIX posted an inverted hammer, but needs
follow-through on Thursday to confirm the reversal.Â On an intraday basis, the
ES reversed off the 992 area on the 13-min bearish Butterfly pattern I posted
yesterday (see chart).Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â

The next 2 days are busy on the economic front,
starting with Thursday morning’s Jobless Claims numbers.Â Market players will be
looking for a small rise in claims, but also, more importantly, for a
continuation of the streak under 400,000.Â The Producer Price Index is also on
the schedule, with a consensus of a 0.1% increase.Â Also, be prepared for an
increase in volatility as positions are squared up ahead of Friday’s monthly
options expiry.

On a side note, for all you Tradestation users
who were looking for a way to use my 3-Line Break methods, Tradestation has now
provided a code for the charts that can be found

here.