Why You Should Be Careful Getting Aggressively Long Up Here

December 12, 2003
Chris Curran

The
March
SP 500 futures opened Thursday’s session
with a small gap to the downside after Weekly Jobless Claims were reported at a
6-week high and Retail Sales showed that consumer spending was back on track, at
least for now. The TICK moves for the first 90 minutes continued the short
squeeze from Wednesday, keeping the shorts mostly pinned against the wall as it
made shallow pullbacks, with the futures fading, and then new highs.

The
contract topped out just under R2 resistance at 1,067.50 and traded in a 2-point
range for the next 3 hours. The consolidation broke to the upside, led by the
Dow and its quest for 10k again, after release of the FOMC meeting minutes from
October that reinforced a low rate environment (at least for a considerable,
sizable, and substantial amount of time). Profit-taking the last 1/2 hour
couldn’t keep the contract down as it rebounded to close just under the high.

The March SP 500 futures closed
Thursday’s session with a gain of +8.50 points, and finished in the upper 1/2 of
its range. Volume was a healthy 680,000 contracts, which was ahead of Monday’s
pace and the daily average. Open interest increased in the March contract on
Tuesday’s decline, which is probably more reflective of pure rollover into the
new contract than anything. Looking at the daily chart, the contract posted a
market structure low off of Wednesday’s doji. The “oversold on support”
scenario was confirmed with the reversal off of its 20-day MA and Stochs
retracing enough to turn back up again, and giving room to move up to the top of
its channel in the 1,080 area. However, with the weekend upon us, I’d be
extremely careful getting aggressively long up here.

On an intraday basis, bull flags were the name of
the game, especially on the 3-min chart many times throughout the session, and
leading up to breaks of the flags on the larger time frames.

Friday morning brings us the
Producer Price Index at 8:30 ET, with a consensus for a 0.1% increase and the
core to remain unchanged. The preliminary Michigan Consumer Sentiment Index
follows at 9:45 ET, with an expected increase to 96.0.