What Open Interest Is Telling Us
Stock
index futures opened Thursday’s session with a downside gap after news
of a bombing in Spain. The morning was spent in a 7-pt oscillation range around
the unchanged mark as the contract tried to work off some of its short-term
oversold condition. With the rollover to June as the active month, some thinness
in the ES was to be expected, but the session gave some nice symmetric moves on
almost twice the normal Average True Range. Enough buying interest emerged to
help the contract break its range but a rumor that Al-Qaida was claiming
responsibility for the Spain attack stalled the up move, and after the news was
confirmed, good broker selling, led by Merrill Lynch, punched through the
session low. The ES spent the rest of the session breaking 1 bear flag after
another as it sliced right through S1 at 1111.50, through the overnight Globex
low at 1109.50, and settled just above S2 at 1104.
The June SP 500 futures closed
Thursday’s session with a loss of -15.00 points, and wiped out all of its gains
for 2004. Volume in the ES was estimated at a heavy 930,000 contracts, which was
ahead of Wednesday’s pace, and well above the daily average. Open interest
increased on Wednesday’s slide, showing the shorts are getting more aggressive.
Looking at the daily chart, the ES cracked minor support at 1112, and aside from
the fact that it’s been down 4 days in a row, which we haven’t seen since 2/03,
there really isn’t any support down to the contract’s 100-day MA at 1096.50. On
an intraday basis, the contract hasn’t been able to even breach 60-min and
30-min resistance the entire week.
The Banking Index (BKX)
continues to retrace from its all-time high and bounced off of its 10-day MA.
The Dollar Index (DXC) got smacked due to the terrorism scare and posted a
bearish engulfing line right at 100-day MA support. The SOX showed good
relative strength early in the session, helped along by NSM’s earnings, but
ended up posting an inverted hammer right at daily support. The VIX continued
its power thrust above the break of its weekly and daily downtrends to close at
a 5-month high
Friday morning gives us
Business Inventories at 8:30 am ET, with an estimate for a 0.3% increase, and
the Preliminary Michigan Consumer Sentiment Index at 9:45, with a consensus of
95.0. Oracle’s earnings report after the close was helping the futures firm up
a bit, but I’ll be looking to fade any upside gap on Friday’s open, and then
another morning oscillation range.
Please feel free to email me with any questions
you might have and have a great trading day tomorrow!