Signs That A Break Is Upon Us
Yesterday morning’s action was once again muted. The chart pattern clearly
showed the market, while moving in a direction (up), was very difficult, if not
impossible, to play from an HVT standpoint.
As we all know, we are looking to trade in the direction of the trend. So
yesterday would have had us looking to be mostly on the buy side. However, what
we did not get was fluid price action with which to establish a long. Every
pullback kept pulling back, never pausing at the 20-period EMA (red
line). Rather, the action meandered from the upper to the lower Bollinger
Band. Look at the chart below. Each green line shows a healthy 3+ point move in
the S&Ps. However, I know from experience that the 20 EMA is typically a
stalling point, or more importantly, a place to establish a long or short.Â
That did not happen yesterday. Rather, the price action simply traded through
the 20 EMA, then repeated the process. There were very few times where it pulled
back to the 20 EMA, paused, then resumed the immediate trend. That is what
constitutes HVT. Secondly, the trades that did conform, rarely had more than a 2
point thrust higher in the S&Ps.
So, without repeating myself, we are in a range, period. Until we break, be
patient. It is not the end of the world. This is the reality of being a
professional trader. There are, however, as mentioned in Tuesday’s column, signs
that a break is upon us. As I have said, I believe it will be to the downside,
bur regardless of direction, it will loosen things up for HVT.
- Implied Volatility continues to
contract. The year low is around 15, although the recent reading coincides
with the November low. The volatility could continue to contract, but with
some stiff resistance in the S&Ps, I suspect IV
will perk up in the days to come.
   2.   Technically, the S&Ps are at a
critical juncture. For the sake of repeating what has already been stated
clearly by Derrik Hobbs in his
Tuesday column, it is make or
break time.
   3.   Fibonacci Time Window. The chart
below shows two potential reasons for a decent move out of this price
congestion:
- Â Â Â Â Â Â Â Technically you could argue that the S&Ps are forming a
wedge/triangle that will break. - Â Â Â Â Â Â The 1.38 extension from the Dec. 2 high to the March low gives us
a Fib time reading of April 16-17. I have also read others who put this out to
the 21st. A Fib time reading only indicates a potential trend change. If this
date plays out, the trend change, although a subjective conclusion, would be
lower.
So, we are setting the stage for some good trading. Kick back, be patient
and go for the throat when the market tips its hand.
Update:
As of Wednesday morning the futures are bid up pretty nice, although a couple
of points off the Globex highs. The 905 level will prove critical. If broken to
the upside, look for 916 as a target in coming sessions. However, now that the
“news” is out on INTC and
MSFT, I would not be surprised to see the
market fade this opening. Naturally, you will want to be on the lookout for
opening gap trades (HVT), although follow through to the downside vs. a
resumption of the trend is possible.
| Support/Resistance Numbers for S&P and Nasdaq Futures |
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* indicates a level that is more significant
As always, feel free to send me your comments and questions.
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