Watch Sell-Side Divergence In The BKX
The December S&P 500
futures (SPZ and ESZ) opened Monday’s session with a +2.75 point gap
to the upside, and despite the year-end close for many mutual funds on Friday,
market players came to work the first trading day of November with buying on
their mind. Good broker buying came into the market ahead of the 10 am ISM Index
and Construction Spending reports, which were both reported higher than
expected.
After some accelerated follow-through buying on
the news, the contract churned in a 1-2 point range for the next 5 hours, but
still held its early gains above R3 support. A late move up on decent volume was
able to print a new session high, but saw little follow-through to extend the
gains and fell right back into its previous range. More profit-taking into the
close tempered the majority of the gains.
The December S&P 500 futures closed Monday’s
session with a gain of +4.75, and finished in the lower 1/2 of its daily range.
Volume in the ES was estimated at 609,000 contracts, which was ahead of Friday’s
pace and right at the daily average. On a daily basis, the contract posted a
shooting star and is setting up with sell-side divergence just off the Oct.
high.
On an intraday basis, the longer time frames were
a good example of overbought Stochs just becoming more overbought as the day
wore on, with the 30-min chart also presenting a classic price fade and a boost
from MA support (see chart) before the late confirmation of sell-side
divergence. The daily Banking Index (BKX) broke a daily cup and handle pattern
to a new 52-week high and is also setting up with sell-side divergence.
Tuesday is free of any economic reports, and the
absence of any catalysts along with the nasty closing PREM of (4.82), I’d be
wary of a “gap and trap” on any gap up at the open.
Please feel free to email me with any questions
you might have, and have a great trading day on Tuesday!
Chris Curran
chrisc@tradingmarkets.com