What Wednesday’s ‘NR7’ Tells Me…

December 18, 2003
Chris Curran

The
March
SP 500 futures opened Wednesday’s session
with a small downside gap, after another tight overnight Globex range. The open
was a virtual repeat of Tuesday’s open as the futures faded the TICK moves to
print the session’s low. The contract then oscillated between the overnight low
at 1,070 and Tuesday’s close at 1,073.50 for 5 1/2 hours, and the market
started to feel like it closed early due to lack of interest. The range was able
to break its range in the afternoon, just like on Monday, with the contract
pulling back to its Daily Pivot before reversing and printing the session high.

The March SP 500 futures closed
Monday’s session with a gain of +2.75 points, and finished in the upper 1/2 of
its range. Volume in the ES was estimated at an anemic 446,000 contracts, behind
Tuesday’s pace and below the daily average. Looking at the daily chart, the
contract barely missed posting another inside day, but did post a “NR7” day (see
below) as it continues to reverse off of its 10-day MA. The contract still has a
bit of room left to the upside to the top of its trading channel above 1,080. On
an intraday basis, 30-min and 13-min support failed at mid-session, but the
60-min held its ground for all 3 to finish back above support and at the 62% Fib
retracement to the post-Saddam hype top from Monday’s open.

Thursday morning gives us the
Weekly Jobless Claims number at 8:30 ET, which is expected to break its 6-week
high and show a decrease to 365,000 from the previous week. That is followed at
10 am by the November Leading Indicators, and its expectations for a decrease to
0.3%. The last report of the day is at high noon with the Philly Fed, which is
expected to come in at a slight decline at 25.0.

With the NR7 day on Wednesday,
I’ll be looking for some range expansion on Thursday, and god forbid, a trend
day for pullback entries. There is an unusually high amount of open puts going
into Friday’s quadruple-witching expiration, which could keep the market afloat
at least until then.

Narrowest Range of the Past
7 Days

The market tends to alternate
between periods of range contraction followed by range expansion. Toby Crabel
first introduced the concept of the “NR7,” or the narrowest range of the past 7
days, in the 1980s. A drop in short-term volatility is most visible by a
contraction of the daily range, especially on lighter volume. Many traditional
momentum indicators will give false signals in low-volatility markets. The
general rule of thumb is that the market will make a bigger move after a “NR7”
day.