Monday Fun Day: Or, the Spinning Top.
Greece has a week to produce budget plans to reach their fiscal deficit targets or they are not eligible for aid. The economist estimates that foreign banks’ exposure to Greece and Portugal is about E$1.2 trillion. Wednesday, we will be graced by yet another statement from the FED. Given the dissent we have seen from some members, I would love to be a fly on the wall for those meetings. Saturday Night Life has started to poke fun at the unions. Even they can see the farce and ridicule in “pork for life” – so why can’t the unions themselves. So long as they exist in any profession and are able to limit supply, then this will be the norm in this time of sub-employment:
A congressional groundswell is building to ban proprietary trading at the banks. Non-Commercial Emini (ES) contracts have reached their greatest net short level since November 2008. These are NOT a contrarian indicator – but usually presage a market correction or move up (short and long respectively) through the change from net long to net short, or vice versa.
Tick. Tock. Tick. Tock.
Developed Asia was green. Australia was closed. Emerging Asia was mixed with China in the red. The DAX is gren, being led by industrials and Financials – so the risk trade is on. It gapped up considerably at open and is maintaining that level with support at 6300. Looks like another Monday Fun day for the bulls is shaping up. I don’t know why the rocket, except it looks like the market is responding well to the news that the Treasury will sell up to 1.5 billion shares of Citi stock.
ES followed the DAX but not wth the same degree of violence. Around the Asia open, ES rose to around 1214 where it meandered until the Europe open, then hit 1216ish before following the DAX down and up a bit to currently sit around 1215ish. The interesting part is that on the 5 minute chart for ESM0, TD has 3 risk levels stacked up like planes over Chicago. They are saying that the risk is down if the recent high isn’t cleared. In other words, we’re starting to see a lower low and,now, what may be a lower high – in to the opn. Pivots:
- R2: 1224 = This would be around the 62% FIB for SPX, and is a distinct possiblity today – barring unexpected data or news.
- R1: 1218 = This is where I believe that ES is headed, and it has to make this level to clear all 3 TD risk levels (These arise out of ES reaching SELL countdowns lucky number ’13’ almost simultaneously, from all the consecutvie moves up that have happened over the last week. This is the battle zone for now, and a short at 1218 with stop above would not be a bad move – depndending on the velocity with which ES gets there.
- Neutral: 1208 = May have been a bit of resistance April 21 and 22. It doesn’t look like this is much of anything in the present environment.
- S1: 1202 = This has been a suport and resistance level over the last week. If there is a move down, this would probably be the place to polay the swing trade.
- S2: 1191..50 = Hasn’t really been tested from above as support. It did hold for ES on April 12 and 13.
I believe today will be an up day, simply because it is Monday Funday. Don’t foreget that this is a FED week as well.
I spent some time this weekend checking out what bar shapes occurred the most in tangent just before a local high or top. The results are interesting, and I talk about them a bit below.
The most important points in the SPX chart are:
- TD Pressure has moved back to overbought condition – suggesting that unless SPX has an immediate move down, that it looks likely that the 62% FIB at 1228.74 will be tested.
- SPX has not yet touched the upper Bollinger (21,2) which usually needs to happen before a move down (but doesn’t necessarily mean a move down).
SPX is now just more than 6% above the 55-day SMA, again. The histogram shows that above that point, the relationship is getting stretched. When the SPX slope is positive, SPX is more than 6% above the 55-day SMA
As well, the last two bars were a ’45’ and a ’25’. There have only been 5 occurences of this combination since 1982. The majorty (3 times), the third bar has been CLOSE = OPEN, ie in the same segment. For the ’25’ bar, CLOSE < OPEN (41%); CLOSE > OPEN (49%); and CLOSE = OPEN (10%).
I would have to go with the 2 bar combination here which suggests that the movement of the SPX will lead it to close near the open – or a spinning top. However, my research outlined below, indicates that today is not likelly to be a local top, and that there is more upside. This is enough to leave me ambivalent towards the possibility of CLOSE = OPEN, and looking for a test of the SPX 62% FIB – possibly this week.
The chart is from Sunday evening. EUR is still struggling to get over the blue line that is the 50% FIB within the channel (if you can see it through all the spaghetti, then you’re doing really really well). It is facing more selling pressure as the future of Greece is in doubt again, and the market still believes that it is all negative for the EU.
I defined a local “top” as a close at the highest point for the previous 10 bars and the succeeding 10 bars. I’ll probably use the HOD to re-do this analysis, but the CLOSE will do for now. (If you have ideas or opinions as to why one or the other is preferable for defining the local top or high, let me know). Another idea would relate to defining the top by the distance from the lowest points within ‘X’ bars (10 in my current analysis, but can be any number of bars to either side of the “top”).
This relates, in a way, to the Japanese candles where certain combinations are assigned particular meanings.
The results were quite interesting, showing that the pattern has more meaning when it is part of the TOP. i.e. the second bar is the one with the TOP for at least the next 10 bars. I can tell you that the combination ’45’ ’25’ which we just had on Thursday and Friday, have only preceded a TOP on the next day once before. This occurred March 5, 2004 – which was after a sideways move and preceded a drop of about 65 points (or about 5 – 6%) over 13 trading days.
The combination has NEVER had the TOP on the ’25’ bar. In other words, based on the history since 1982 – this combination has never indicated a local TOP (defined as the highest point of the previous 10 bars and the succeeding 10 bars). Interesting, no?
Neither Friday, nor Today are likely to be defining a top – the SPX is going higher based on this analysis. Note that Friday’s close was the highest including the previous 10 bars – so it has the potential to be a TOP (except for the shape of the two bars).
My Best Regards.