Long Post $SPX $ES_ F $6E_F $SPY $$ #market

Following Sunday´s post, here are some of my observations. It seems that finally rollover period is almost done and things are gettin back to “normal” -if we can call it that way.

Still in a headline driven enviroment, I started the week working with a hypotesis for more downside

1240 is support, followed by the 3 gaps below, which are too strong to ignore and think that they would not revisited

It turned out that the scenario was confirmed and the SPY is currently in the intersection of the 2 gaps, sitting at the top of the second one @121.74. 

23232

I´m hereto looking at two possible scenarios:

a-) the move continues to the downside, specially due to the lack of congestion in this area, added to the fact that there´s a very thin area below, denoted by the candle of November 28th (almost a doji)

b-) the top of the second gap provides support for a bounce which could provide the opportunity for a rally. 

The ES is reaching the end of the rollover transition period, thus, there are some levels to observe thru the new March 2012 contract. So far, there is some acceptance of the lower value area, although there´s not much to hold it below. If the ES cannot hold this support, the immeadite target is 1198.75-1195 area. The CumDelta readings show that the last few days of selloff have literally left no long positions holding in the market. This is similar to the situation observed back on my Nov. 26th post (“What´s Next?“), where I stated to work with a rally scenario. Here´s a brief excerpt

As noted on the chart below, the last level of committed longs has been tested and gave up last Friday (the level is marked in white), which was reflected in the 12 point selloff during the early Friday morning. Although the index recovered some of its previous levels, he rally lost momentum, closing off 20 points from 1171.25 highs. This has left a heavy shorted market that could provide some fuel for a rally if new buyers come into the market. This is not a predicition, just a scenario. 

Similary, there are no more longs left at the moment, showing a heavily shorted market. However, it is important to note, that the levels are not 100% realiable due to the fact that we are at the very beggining of the term for this contract. Furthermore, the market can still go down if new short inventory is added. So far, keeping the options open. 

2011-12-15_0038_001

Although it has diminished slightly today, both ES and 6E have been closely correlated, a both had some little capitulation selling, although not to the extent I was looking for.

2011-12-15_01322011-12-15_0130

The postive to this is that –inventorywise– the EURO (represented here thru 6E, euro futures), is showing much more longs commited than the ES. Therefore, a scenario that I´m playing is the following:

Provided the positive correlation between ES and 6E continues, the fact that quite a few more long positions are committed in 6E (than ES) is indicative of further upside. Since the market is mostly driven by news coming out of Europe, therefore if this trend continues then the ES, and the market in general, could experience at least a short term rally. 

Just an idea.

2011-12-15_0044

Price action will ultimately tell in the coming hours if the market has found some foooting -at least temporarely- or if its only the beggining of the next leg down.

I have some slight bias to some further upside, although my decisions are based in what I see in the charts. 

Some levels to watch for ESH2.

2011-12-15_0038

Good trading.

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