Watch These Two Vulnerable Levels Today

August 13, 2003
Chris Curran

The September S&P
futures (SPU and ESU) opened Tuesday’s session with less than a
1-point gap to the upside. Volume was extremely light right off the open as
market players started preparation for the FOMC announcement early. The contract
used the daily Pivot at 979.50 as a floor, and chopped around in a 3-point range
until the release at 2:15 pm ET. There was mixed news out of the FOMC meeting.
The bad news was that their statement confused the equities market, and it took
a while for the usual three reactionary moves to get going (see chart). Bonds
initially rallied off the news, but finished right back where they were prior to
the announcement.

The FOMC statement said “The Committee judges
that, on balance, the risk of inflation becoming undesirably low is likely to be
the predominant concern for the foreseeable future. In these circumstances, the
Committee believes that policy accommodation can be maintained for a
considerable period.” In other words, using my handy decoder ring, it means the
Fed is prepared to leave rates low for too long, and long enough for Mr.
Greenspan to get reappointed. The good news was that the reaction to the
announcement eventually doubled the 5-pt range the futures had been stuck in
(yes, I’m reaching here!).

The September S&P 500 futures closed Tuesday’s
session with a gain of +8.75 points, and finished just off the high of the day.
Volume in the September ES was estimated at 439,000 contracts, which was behind
Monday’s pace and still below average. On a daily basis, the contract was able
to close back above its 20-day and 50-day MAs The VIX has come back down to
test the 20 level, which is a vulnerable area for it to reverse up. On an
intraday basis, the ES is forming a 13-min bearish Butterfly pattern, with 992
being the reversal area to watch (see chart).

On Wednesday morning at 8:30 am ET, we have the
Business Inventories report, with a consensus of (0.1%), and the July Retail
Sales report, which is expected to post a 1% increase over June’s number.