What This Weekly Bar May Mean For The E-Minis
Stock index futures experienced a rough week of trading
and seemed to end the month of January on a sour note. Despite the largest
monthly inflows into equity funds since March of 2000 and extremely bullish
sentiment, the underlying indexes were only able to finish slightly higher in
January. Make no mistake, a gain is a gain, but there seemed to be a change in
the air as the month came to a conclusion. The main catalyst behind the
weakness was a decision by the Fed to leave out the statement “a considerable
period” from its policy statement. Following the release, traders sold first
and asked questions later, which resulted in very steep declines in interest
rate-sensitive sectors. Some of the selling was also likely a product of a few
disappointing earnings reports, such as NVLS, which caused many to question the
sustainability of the economic recovery. When all was finally said and done,
the overall declines were not too significant, especially given how overbought
the major indexes were.
The March SP 500 futures closed
Friday’s session with a loss of -.25 point, and finished the week with a loss of
-12.25 points. Volume in the ES was estimated at 585,000 contracts, which was
behind Thursday’s heavy pace, and below the daily average. On a weekly basis,
the result was a bearish outside week as the ES posted a spinning top and a
market structure high, but was still able to hold its 200-week MA. The Average
True Range also perked up a bit for the week. Looking at the daily chart, the
contract posted an inside day with another doji, but broke its 20-day MA
support. On an intraday basis, the contract closed in a triangle just above
60-min, 30-min, and 13-min support, so the intraday time frames are pointing up,
but are staring at daily resistance just above.
Coming into
2004, two of the more bullish factors were the high level of bearish bets being
made against stocks and the strong market internals. Those two factors have
changed recently, as many of the short-sellers and put buyers may have
capitulated. The reason I say this relates to the recent extremely low reading
in the 21-day P/C Ratio. Also, there have been many recent reports of
short-selling hedge funds going out of business. With most of the shorts likely
already shaken out of their positions, there could be little support for stocks
should a more serious decline take place.
The other
major factor that has caught my eye in recent days is the deterioration in
market breadth. Anytime participation in a market advance is narrow, it
suggests that overall demand for stocks is not high. Historically, weak breadth
figures have been a precursor to market declines. I don’t want to get too
carried away just yet, because the key indexes were long overdue for a
pullback. However, should the recent trend of weak breadth continue in the
short-term, it could be a warning sign that stocks may be in for some trouble
down the road.
Looking ahead this week, the
economic calendar is fairly heavy with the ISM Index on Monday, ISM Services on
Wednesday, Q4 Productivity on Thursday, and the January Unemployment report on
Friday. Earnings season starts to wind down, but Tuesday’s report from tech
bellwether Cisco Systems (CSCO) could shake things up.
Daily Pivots for 2-2-04
| Symbol | Pivot | R1 | R2 | R3 | S1 | S2 | S3 |
| COMP | 2067.86 | 2077.17 | 2088.20 | 2097.51 | 2056.83 | 2047.52 | 2036.49 |
| INDU | 10479.28 | 10519.60 | 10551.14 | 10591.46 | 10447.74 | 10407.42 | 10375.88 |
| NDX | 1495.33 | 1502.87 | 1512.67 | 1520.21 | 1485.53 | 1477.99 | 1468.19 |
| SPX | 1131.01 | 1134.29 | 1137.45 | 1140.73 | 1127.85 | 1124.57 | 1121.41 |
| ESH | 1129.42 | 1132.83 | 1135.67 | 1139.08 | 1126.58 | 1123.17 | 1120.33 |
| SPH | 1129.40 | 1132.80 | 1135.70 | 1139.10 | 1126.50 | 1123.10 | 1120.20 |
| NQH | 1496.83 | 1505.17 | 1515.33 | 1523.67 | 1486.67 | 1478.33 | 1468.17 |
| YMH | 10437.67 | 10515.33 | 10562.67 | 10640.33 | 10390.33 | 10312.67 | 10265.33 |
| BKX | 992.28 | 996.62 | 1000.55 | 1004.89 | 988.35 | 984.01 | 980.08 |
| SOX | 513.70 | 517.49 | 520.57 | 524.36 | 510.62 | 506.83 | 503.75 |
| QQQ | 37.16 | 37.35 | 37.63 | 37.82 | 36.88 | 36.69 | 36.41 |
| SPY | 113.43 | 113.77 | 114.06 | 114.40 | 113.14 | 112.80 | 112.51 |
| SMH | 41.92 | 42.28 | 42.61 | 42.97 | 41.59 | 41.23 | 40.90 |
Weekly Pivots for Week of 2-2-04
| Symbol | Pivot | R1 | R2 | R3 | S1 | S2 | S3 |
| COMP | 2087.02 | 2132.96 | 2199.78 | 2245.72 | 2020.20 | 1974.26 | 1907.44 |
| INDU | 10537.03 | 10656.22 | 10824.36 | 10943.55 | 10368.89 | 10249.70 | 10081.56 |
| NDX | 1506.96 | 1539.78 | 1586.49 | 1619.31 | 1460.25 | 1427.43 | 1380.72 |
| SPX | 1136.30 | 1150.21 |
|