This Is The Healthiest Scenario For Wednesday

January 7, 2004
Chris Curran

The
March SP 500 futures opened Tuesday’s session with a small gap to the
downside, just above the Daily Pivot at 1,117.75. After Monday’s run-up, an
oscillation range was to be expected. The contract churned its way to fill the
gap, then slid back to test the lows on concerns over the strength of the
economy following the weaker-than-expected report on services activity from the
Institute of Supply Management. The session turned into a test of patience and
knowing when not to trade as the market again worked off its excess by churning
in a tight lunchtime range. But, it was deja vu all over again as good broker
buying, led by Merrill Lynch and Morgan Stanley, emerged in the afternoon to
ignite the futures to a new session high.

The March SP 500 futures closed
Tuesday’s session with a gain of +1.75 points, and finished in the top 1/2 of
its daily range. Volume in the ES was estimated at a heavy 520,000 contracts,
which was behind Monday’s pace, but well above the daily average. Looking at
the daily chart, the contract continues to climb in a very steep and narrow
trading channel. Open interest did increase during Monday’s advance, and we may
be seeing the “missed the boat” money coming in.

On an intraday basis, the contract held the 1,118
breakout support area from Monday’s cups to form and break triangles on the
60-min, 30-min, and 13-min charts. Watch for a pullback to the 1,121-1,120.50
breakout area, which has now become support.

Wednesday is free of economic reports and with
the market stretched, the healthiest scenario would be some more “backing and
filling” to let daily support catch up ahead of Thursday and Friday’s employment
numbers.