If Your Favorite Market Isn’t Moving, Try This

November 25, 2003
Chris Curran

The December SP 500 and
Dow futures opened with small gaps to the upside on news that the
economy had shown the best quarterly growth since 1984 and light follow-through
strength from Monday’s trend day. After quickly filling the opening gap, the
futures saw good buying ahead of the 10 am Consumer Confidence number, led again
by Merrill Lynch. The higher-than-expected number drew some selling on the news,
but the contract acted again like a beach ball being held under water, and
sprang right back up.

The December SP 500 futures
closed Tuesday’s session with a gain of +3.75 points, and finished in the upper
1/2 of the daily range. The December Dow futures closed the session with a +21
point gain, and also finished in the upper 1/2 of its range. Volume in the ES
and YM was estimated at 562,000 and 45,000 contracts respectively, which was
behind Monday’s pace and below the daily average. Open interest increased on
Monday’s up move, changing the recent trend we’ve seen of selling into
strength. On a daily basis, the ES extended its breakout above its 20-day MA at
1,048 and continues to eye the 1,060 area.

On an intraday basis, the
30-min chart reversed off of divergence, but held MA support at the closing
price. We’ll be starting Wednesday’s session with 13 and 3-min resistance at
1,054.25, then a couple of overlapping support levels at 1,051 (60-min,
15-period MA and 38% Fib retracement support) and 1,046 (13-min, 200 period MA
and 61.8% Fib retracement support) (see chart). The YM was able to close just
above its 20-day MA and has no real daily resistance for another 100 points.

Wednesday morning brings us a
virtual overload of economic reports, starting with Personal Income, Personal
Spending, Durable Orders (consensus 0.7% increase), and Weekly Jobless Claims
(consensus 360,000) at 8:30 am ET. Those are followed at 9:45 by Michigan
Sentiment (consensus 94.0), and at 10:00 by the Chicago PMI (consensus 56.5) and
New Home Sales (consensus 1,138 mil). The morning is capped off by the Fed’s
Beige Book (old news) at 12 noon. With three up days now, some “backing and
filling” here would be a healthy scenario for an assault at the November
highs. Also, with the early bond market close at 1 pm ET, I’d expect volume to
take off early as the second string (don’t touch anything!) gets left behind to
man the trading desks, and I think I’ll probably join it.

Spreading
Out Your Risk

A few weeks ago, I wrote about
the importance of knowing what type of market fits best with your trading style,
and knowing when to step aside when it wasn’t a good fit. On the same note, are
you freely able to spread your risk to different markets? I’m not trying to give
the “few stocks, a few bonds, a little bit of cash” speech, but on those days
that the ES (or whatever you like to trade) is nothing but “chop and slop,”
there is probably another market “in play,” such as the Dow E-mini (YM), the
Semiconductor Holdrs Trust (SMH), the QQQ, or the Bonds. While it’s a lesson in
futility to try and trade anything and everything that is moving, it’s often
wise to follow the old saying “don’t put all your eggs in one basket.” By
following a handful of markets and learning how they move and behave, I have
something to fall back on and spread out my risk exposure when my favorite just
isn’t giving much.