Roadmap: Late-week update – $ES_F $SPY $SPX $MARKET $$

Spy

ES started Sunday night with an 11 pt. sell off. Nevertheless, it managed to recover during Monday´s session after testing 1296, were it rallied more than 20 points.

2012-02-02_2034

Yesterday, the ES broke out of the range during the morning and spent the rest of the day rangebound. The market was range bound today (less than 10 pts.), in expectation for the NFP report tomorrow morning.

2012-02-02_2036

Wednesday´s move -and today´s continuation- showed the acceptance of higher value areas, as noted below.

2012-02-02_2135

The point is what to look for tomorrow?  Assuming the range is not broken overnight -I find it difficult to brake to the upside and/or sell off 20 points, provided no critical news come off during the night, although in this environment anything is possible.

Important to note that China issues its services PMI tonight, though. The NFP is market moving event which usually triggers an important reaction in the market, thus, I find it less probable for the ES to maintain this range after the report.

  • A positive reaction, will most likely bring a move that would challenge the previous highs@1330 (only 7 pts. away, at the time of writing 6:51PM, ET), to say the least. However, I have not downloaded the data that could require me to identify the previous value areas (aprox. 40 pts. above), which would entail going back July 2011, 6 months back. Thus, we will be in brand new territory, so the extent of it, if it retraces and then sellsoff (another possibilty), is not possible to determine currently. Nevertheless, I work with potential scenarios and those could be in play, for example.
  • A negative reaction, could bring the “excuse” for the market to sell off. That sell off could transform into a bigger correction, depending on how many sellers jump on board and how many of the longs already placed are willing to resist that pressure.

Longer term, there are few interesting observations to point out.  The positioning hasn´t change much since my previous post on Sunday. Regardless of the the 20 up move, no significant long positions have been added. The red and pink lines are only the only 2 levels of shorts left (the data goes as far back as 60 days): 

-Those from Dec.5, 2011@1265, and (pink line. The color is due to the period in which this happened, rollover. This level tend not to be as reliable, as noted before)

– Those from Dec. 5,2011, short@1257

2012-02-02_2141

Important to note is that both have been holding their short positions in front of a almost 70 pts. rally. I´m leaning towards the idea that if one of them closes, it is very likely that the other will follow, thus igniting a rally. 

wConversely, If a a sell off happens, provided those shorts maintain those positions, then we could possibly be present of a strong commitment towards this level not to be surpassed. The nature an extent of how long this would last -meaning for that if this becomes a temporary top in the market- is not possible to define, currently. 

However, the levels of demand show in the chart below shows the immediate levels of demand that exist in the market, being the first meaningful area within the 1314 neighbourhood, followed by 1296-1300, which would imply a complete retracement of the current week´s move.-

2012-02-02_2146

Below that, 1282-1288 area, at least for now. Those levels date from Jan.18-19, 2012, as noted below

2012-02-02_2150

At last, I would like to point out an occurrence that left me slightly leaning towards the rally scenario. During today´s RTH session, the ES sold-off  8.50 pts., which showed an important amount of longs liquidating (1). The move challenged those longs from 1305, which instantly showed up, defending the lows of the day @1317.50 (2). This reaction-similar to the one occurred on Monday (3)- has showed a clear level of important reaction of those longs who are not willing to give up the current levels, at least for now. 

2012-02-02_2127

Again, I´m trying to layout potential scenarios here, not make a prediciton. Hope you find it useful.

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