Signs That A Range-Expanding Move Is Near

January 21, 2004
Chris Curran

Stock
index futures opened the holiday-shortened week with gaps to the
upside on earnings-related news. The Dow had five components reporting before
the open, which saw some selling on the news that they had beat estimates. The
YM showed the best relative weakness off of the open, showing a complete fade
against the rising TICK. The ES did its best to stand its ground, while the YM
traded off, but soon, good broker selling cracked it as well to fill the opening
gap. The contract snapped back to print a new contract high, but good broker
selling came into the SP pit again and stopped it dead in its tracks. After 2
hours of the retracements being sold, which we haven’t seen for awhile, the tide
began to turn as buyers became bold enough to support the futures at S1 support
at 1,134. But the contract just couldn’t get anything going (kinda like Indy’s
offense) with light volume and choppy air pockets that kept tripping up the
moves.

The March SP 500 futures closed
Tuesday’s session with a loss of -0.50 point, and finished in the bottom 1/2 of
its range. Volume in the ES was estimated at 563,000 contracts, which was
behind Friday’s pace, but still above the daily average. Looking at the daily
chart, the contract just barely posted a market structure high with trend line
and 10-day MA support following in the 1,130-29 area. The contraction in
volatility with a rising wedge is setting us up for a near-term range-expanding
move. Probability favors a downside move, but you can be sure that the market
will do its best to slap the shorts good one last time before doing so.

Pre-market events for Wednesday’s session include
Tuesday night’s State of the Union Address at 9 pm ET and Wednesday morning’s
Housing Starts and Building Permits reports at 8:30 am ET, but none should be
market-movers.