The Precise Take – Still consolidating

Big Picture Analysis: We’re entering the news heavy part of the week, though only one more report is out today, which is the Housing Market Index at 10:00 am EST.  Three big reports are released tomorrow before the bell, followed by Philadelphia Fed Survey at 10:00 am, with options expiration on Friday.  While news out of Europe has been driving the US futures overnight (and nearly all the gains in this rally have been from the overnight gap), focus during the day is steadily shifting to domestic headlines.  If this reverses concurrent with a decisive break in the ES below the January 13 overnight 1272.75 low, a short term correction could build steam, going as low as 1210-15.  Otherwise, expect higher highs.

Explanation of 60 minute chart: We have reintroduced some elements into the 60 minute chart, such as the projected range, which long time readers will recognize from the 30 minute chart we used to publish prior to August, 2011.   The reason we had stopped was the expansion of daily range and headline driven market made the projections too arbitrary and not useful.  Should the bear market reassert, we may revert once again, but for now, below is how to read the chart.  (In progress is a way to show more granularity on the right edge price axis.)

The thin horizontal boxes are support and resistance areas of varying strength.  The yellow vertical box to the right is the projected range.  Support and resistance areas that fall at or within its boundaries are ripe for countertrend plays.  The gray boxes are neutral zones, where we would still consider countertrend plays, but with a bit more caution.  The blue and red vertical boxes mark the areas above and below which the market could easily get away from us and countertrend plays are much more risky.  It’s trend days that tend to move only in one direction, closing at the extreme, that tend to punish day traders the most (and keep in mind that down moves are often much more quicker than up moves).

It’s up to readers to determine how to read the market at the various support and resistance areas (whether to hold or fade), but the following briefly explains our approach.  Upon price reaching key support and resistance areas, we monitor market dynamics.  Such areas are identified by prior price action areas, floor trader pivots, 50% retracements, and various volume-based tools, including a simplified MarketProfile framework and MIDAS. The dynamics we monitor include short term price charts, order flow (market depth), the tape (time & sales), relative volume, and sentiment (such as NYSE Tick).

The charts:

Click above images for larger size.

The Precise Take – New highs after downgrades

Big Picture Analysis: Friday, the pre-market selloff continued into the opening hour, but support was found at the lower end of the high volume area we have been monitoring (135 minute chart).  Importantly, though S&P downgraded France, the EFSF and several other entities over the weekend, it appears these events have been priced in, as the ES made a new high at 1302.50 overnight.  Though today’s news is out, it’s a busy week, as earnings season gets underway, along with three housing reports over the next three days, PPI Wednesday, CPI and Philly Fed Thursday, and options expiration on Friday.  Bulls have been increasingly making their case for the intermediate term, while short term there will be plenty of opportunities for shakeouts.

Explanation of 60 minute chart: We have reintroduced some elements into the 60 minute chart, such as the projected range, which long time readers will recognize from the 30 minute chart we used to publish prior to August, 2011.   The reason we had stopped was the expansion of daily range and headline driven market made the projections too arbitrary and not useful.  Should the bear market reassert, we may revert once again, but for now, below is how to read the chart.  (In progress is a way to show more granularity on the right edge price axis.)

The thin horizontal boxes are support and resistance areas of varying strength.  The yellow vertical box to the right is the projected range.  Support and resistance areas that fall at or within its boundaries are ripe for countertrend plays.  The gray boxes are neutral zones, where we would still consider countertrend plays, but with a bit more caution.  The blue and red vertical boxes mark the areas above and below which the market could easily get away from us and countertrend plays are much more risky.  It’s trend days that tend to move only in one direction, closing at the extreme, that tend to punish day traders the most (and keep in mind that down moves are often much more quicker than up moves).

It’s up to readers to determine how to read the market at the various support and resistance areas (whether to hold or fade), but the following briefly explains our approach.  Upon price reaching key support and resistance areas, we monitor market dynamics.  Such areas are identified by prior price action areas, floor trader pivots, 50% retracements, and various volume-based tools, including a simplified MarketProfile framework and MIDAS. The dynamics we monitor include short term price charts, order flow (market depth), the tape (time & sales), relative volume, and sentiment (such as NYSE Tick).

The charts:

Click above images for larger size.

The Precise Take – Index futures down after JPM miss

Big Picture Analysis: Yesterday, the ES sold off after the open and probed as low as 1280.75 before sharply rebounding higher, overnight hitting 1295.00 just before the European open.  As we write, most of these gains have been given back, led by financials after a JPM earnings disappointment.  Some have noted the ascending wedge in the ES on the daily (more compelling on the combined session chart), which indeed might be susceptible to a sharp pullback on a break.  However, in the 135 minute chart below, a considerable amount of volume has traded upwards of 1270 and ought to contain the first pullback.  The flip side is that a break below would likely hit an avalanche of stops and precipitate a sharp selloff, which is what happened in January 2010.

Monday is a US holiday and the markets will be closed, so we might see some squaring ahead of the truncated opex week.  Consumer Sentiment at 9:55 am EST is often a market mover.

Explanation of 60 minute chart: We have reintroduced some elements into the 60 minute chart, such as the projected range, which long time readers will recognize from the 30 minute chart we used to publish prior to August, 2011.   The reason we had stopped was the expansion of daily range and headline driven market made the projections too arbitrary and not useful.  Should the bear market reassert, we may revert once again, but for now, below is how to read the chart.  (In progress is a way to show more granularity on the right edge price axis.)

The thin horizontal boxes are support and resistance areas of varying strength.  The yellow vertical box to the right is the projected range.  Support and resistance areas that fall at or within its boundaries are ripe for countertrend plays.  The gray boxes are neutral zones, where we would still consider countertrend plays, but with a bit more caution.  The blue and red vertical boxes mark the areas above and below which the market could easily get away from us and countertrend plays are much more risky.  It’s trend days that tend to move only in one direction, closing at the extreme, that tend to punish day traders the most (and keep in mind that down moves are often much more quicker than up moves).

It’s up to readers to determine how to read the market at the various support and resistance areas (whether to hold or fade), but the following briefly explains our approach.  Upon price reaching key support and resistance areas, we monitor market dynamics.  Such areas are identified by prior price action areas, floor trader pivots, 50% retracements, and various volume-based tools, including a simplified MarketProfile framework and MIDAS. The dynamics we monitor include short term price charts, order flow (market depth), the tape (time & sales), relative volume, and sentiment (such as NYSE Tick).

The charts:

Click above images for larger size.

The Precise Take – Creeping higher

Big Picture Analysis: As we write, the ES is giving back some of its overnight gains after disappointing Retail Sales and Jobless reports.  The BOE and ECB rate decisions were largely non-events.  Overall, the ES is making higher highs and higher lows.  While that could change, for now bulls retain the short and intermediate term edge.  Business Inventories are out at 10:00 am EST and the Treasury Budget is released at 2:00 pm; however, neither is likely to move the market much unless extremely out of consensus.

Explanation of 60 minute chart: We have reintroduced some elements into the 60 minute chart, such as the projected range, which long time readers will recognize from the 30 minute chart we used to publish prior to August, 2011.   The reason we had stopped was the expansion of daily range and headline driven market made the projections too arbitrary and not useful.  Should the bear market reassert, we may revert once again, but for now, below is how to read the chart.  (In progress is a way to show more granularity on the right edge price axis.)

The thin horizontal boxes are support and resistance areas of varying strength.  The yellow vertical box to the right is the projected range.  Support and resistance areas that fall at or within its boundaries are ripe for countertrend plays.  The gray boxes are neutral zones, where we would still consider countertrend plays, but with a bit more caution.  The blue and red vertical boxes mark the areas above and below which the market could easily get away from us and countertrend plays are much more risky.  It’s trend days that tend to move only in one direction, closing at the extreme, that tend to punish day traders the most (and keep in mind that down moves are often much more quicker than up moves).

It’s up to readers to determine how to read the market at the various support and resistance areas (whether to hold or fade), but the following briefly explains our approach.  Upon price reaching key support and resistance areas, we monitor market dynamics.  Such areas are identified by prior price action areas, floor trader pivots, 50% retracements, and various volume-based tools, including a simplified MarketProfile framework and MIDAS. The dynamics we monitor include short term price charts, order flow (market depth), the tape (time & sales), relative volume, and sentiment (such as NYSE Tick).

The charts:

Click above images for larger size.

The Precise Take – Backing off highs

Big Picture Analysis: Yesterday, some of the overnight gains were given back, but the day session range in the ES was only 7.00 points, the lowest in months.  Much of the action is occurring after hours, as was the case overnight, as headline risk out of Europe got the best of the risk markets.  All in all, we don’t place to much weight on this action, and only if the high volume area (135 minute chart, below) from about 1270 to 1277 fails to contain price do we not see higher highs ahead.  With crude in the spotlight, today’s EIA Petroleum report at 10:30 am EST might move the markets if out of consensus.  Also traders will be looking to the Fed’s Beige Book released at 2:00 pm today, which is a guide for the FOMC in its upcoming meeting on January 24-25.  We don’t expect it to be a market mover, however.

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The Precise Take – Breakout

Big Picture Analysis: Yesterday, the low range trading continued, but overnight, Asia led the risk markets higher, which have not looked back.  In the 135 minute chart below, we can see an upper trend channel target has been reached.  Given the consolidation since the beginning of the year, this move should have legs, and the high volume area established around the 1275 node should provide support on any pullback.  A decisive move below or close below 1270 would warn of a bull trap.

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The Precise Take – Pump primed

Big Picture Analysis: Friday, the US indexes continued the post-Employment selloff in the first hour of trading, but the ES found support at 1268.25, and the day finished relatively flat.  The aversion of a trend day down after the rejection of the October high was somewhat constructive for the bulls.  Overnight, the fourth consecutive probe below 1270 (this time to 1267.25) was bought.  In the 135 minute chart below, we see a considerable amount of volume has been traded between 1270 and 1277.  Combined with the contraction in range, a directional move is likely setting up.  Odds favor the bulls in its resolution; however, a close below ~1265 suggests a correction instead.  Economic news in the US is thin this week, with Retail Sales on Thursday the only top tier report.  Consumer credit is released today at 3:00 pm EST, but is seldom a market mover.  Headlines out of Europe this week, including today, could be the major price drivers.

Click above images for larger size.

The Precise Take – ES attempting to break out

Big Picture Analysis: Yesterday, rumors of a massive mortgage refinancing fiscal stimulus (and subsequent denial) fueled the surge intraday and decline after the close.  This morning, a beat on both the payrolls number and household survey of the Employment Situation facilitated a quick rise to 1282.25, but as we write, the ES retreated to as low as 1274.50.  Notably, 1283.00 is a major interim high from October 27, 2011.  In general, we view long candlestick tails (wicks) on big news as a contrarian signal (see the 60 minute chart below [which has yet to complete as of publication]), so bulls need to push through 1283.00 today to avert what may materialize as a short term correction.

Click above images for larger size.

The Precise Take – ES still in short term down channel

Big Picture Analysis: Overnight, the range in the ES expanded, first heading lower in European trading, then higher on a headline surprise in ADP, only to back off again from prior overnight resistance.  While a shakeout to ~1255 is still in the cards, we want to see longs step in aggressively there, or the recent 2012 price action will look like another topping pattern around the 200 day moving average.  Monitoring price action after tomorrow’s Employment Situation report will be key.  ISM Non-manufacturing today at 10:00 am EST could be a market mover if out of consensus, as could the EIA Petroleum report at 11:00 am.

Click above images for larger size.

The Precise Take – Filling the gap

Big Picture Analysis: Yesterday’s ISM beat was sold into, and the FOMC Minutes were a non-event.  For now, it simply looks like the professional gap in the ES is trying to be filled, and we would like to see buyers come in at about ~1265 to confirm yesterday’s gap was not a bull trap, though we could see a quick run down to high volume support at ~1255, above which, bulls still retain the short term edge.  Today is news-lite, but focus is shifting to the jobs numbers in the US, with both ADP and Jobless Claims before the open tomorrow, and the monthly Employment Situation report on Friday.  Now that the low volume holidays are finally behind us, it will be important to gauge price action around major news, including any headline risk out of Europe.

Click above images for larger size.