Patiently waiting for a pullback

Mondays tight range, but another green day across the broader markets plagued with light volume.
How many days can we rise on light volume before it becomes a problem? This is now the big question. History gives us about 4 days of this, regardless of trending direction the market can only take about four days of rising/falling on light volume before it has to decide SOMETHING. Monday marked our third day of decreasing volume.

We will either see panic set in and the chasers decide to put money to work. OR we will see a pullback to give a buying opportunity. As I showed last night and again tonight on the ES (S&P 500) we are on the third push and Monday met the upside target. Now we look for the pullback. With the light volume we are obviously not seeing new money come in, which probably lets us know the smart money knows eventually we see a corrective pullback to get on board.

Crude rallied as OPEC nears the Thursday meeting to firm up the details on cutting production to close at $59.94 +1.37. Gold also closed higher on the day at $598.50 +5.80 on the day. Oil doesn’t appear to be pressuring the equities side of the market at the moment, but a lot of our confidence has been the drop in oil price and the consumers ability to absorb the rise and now the fall. Going into the holidays lower gas prices will matter and either be a good excuse for failing this next quarter (if prices go back up) or a reason to see things grow (if they remain low).

Going into Tuesday we have a pick up in earnings and economic data. The PPI will give us an update on inflation and where we stand. That is the biggest concern (for now) and where the Fed seems to be focused. After hours news was a little negative and could slow the morning some. With options expiration on Friday we need to look for a pullback then some volatility to come in.

Closing with short term overbought conditions and the Semi’s (SOX) right into the 200dma, we look for early pullback and for any dips to be bought. Banks closed red and the Nasdaq lagged the move up on Monday. Corrective move lower would be an opportunity to see any new money come into the market. Pulling back on light volume would remain bullish, heavier volume generally comes in the market during options expiration so keep that in mind.

Some earnings of interest for the Week of October 16-20: Tuesday pre market — BOT, FRX, JNJ, KEY, MER, STT, UTX, USB, WFC and after the bell CNW, IBM, ILMN, INTC, LLTC, MOT, NVLS, SOV, SYK, YHOO. Wednesday pre market — ABT, ASML, BSX, CIT, GD, JPM, and after the bell — AMD, ALL, AMLN, AAPL, COF, CTXS, CSX, CBST, ET, EBAY, GILD, ISIL, KMI, NVEC, RYL, SSTI, STLD, WM, WSTL. Thursday pre market — BAC, BK, BBT, BBW, C, KO, CAL, CY, LLY, FITB, HON, MCD, NDAQ, NUE, OXPS, BTU, PFE, RS, SAP, POOL, LUV, UNH, UPS, WYE and after the bell — ACS, BRCM, CREE, FNB, GOOG, PMCS, RMBS, RBAK, SNDK, SYNA, XLNX. Friday pre market — MMM, CAT, MRK, SGP, SLB, WL.

Week of October 16th — October20th: Tuesday 08:30 Core PPI, 08:30 PPI, 09:00 Net Foreign Purchases, 09:15 Capacity Utilization, 09:15 Industrial Production, Wednesday 08:30 Building Permits, 08:30 Core CPI, 08:30 CPI, 08:30 Housing Starts, 10:30 Crude Inventories, Thursday 08:30 Initial Claims, 10:00 Leading Indicators, 12:00 Philadelphia Fed, Friday nothing due out.

ES (S&P 500 e-mini) on the chart below you can see three pushes. Each is fairly symmetrical and you see that the third push up is nearing resistance and the pullback if symmetry remains intact would likely be 12-14 points. 1378.25 completed the target for upside move. We hit this to the tick today and now we look for a move to pullback. Mondays tight range left us pretty quiet for most of the day in crawl mode for higher. Once 1378.25 hit we started to drop and volume did come in. But that has to be discounted somewhat because it was the final 20 minutes of trading, which is usually higher volume and some positioning ahead of the PPI data. 1375.25 is Tuesdays pivot, that is convergent with 38.2% support and will give us a nice pivotal area on Tuesday. 1371.75 will be the next key area and onto 1370 support. The corrective action could bring us down to 1366.5 the weekly pivot and then we would look for buyers. Resistance is 1378.25,1381, 1383 and 1384.

BKX (Banks) closed -.65 at 114.05. Support: 113.96, 112.95, 111.98, 111.99 50dma. Resistance: 114.91, 115.42, 116.25, 117.48 . Red day still holding under those all time highs of 114.91. Holding over 113.73 is good support, if we drop under that we look for lower into 112.68.

Good trading to everyone.

Teresa Appleton has traded equities and options for
nine years and futures for seven. She founder and CEO of TradeLogic, LLC. For
more information about Teresa and the training she offers stock, options and
futures traders,

click here.