Tuesday, June 12, 2007

At The Crossroads...

"Do you really like a particular stock? Put 10% or so of your portfolio on it. Make the idea count … Good [investment] ideas should not be diversified away into meaningless oblivion."

Bill Gross


The S&P 500 has retraced 50% of the down move from the end of last week. This puts things at an interesting juncture. The bounce has been on very light volume and after a great recovery from the end of February-beginning of March sell off might make the thought of taking some chips off the table a prudent idea. How much more upside does the market hold with the current technical pattern? For a move higher to continue, a consolidation in both price action and time is needed to base any move off of. As this forms, it is likely that certain levels will be tested to see what underlying strength really exists.

This chart shows the S&P 500 with opening range target levels marked by the dashed green lines. The recent price move is measured by a standard Fibonacci re-tracement calculator. The 2 day rally reached the 50% level of the sell off shown by the three large candle stick days. These three selling days were also accompanied by increasing volume. The two recent positive days however happened with very light volume, indicating that the buying interest/pressure was not as strong as the previous selling.

Some number to watch today are below:
Pivot 1509.33 (High + Low + Close)/3
3Day Pivot 1509.03 (Highest High 3 days + Lowest Low 3 days + Close)/3
Close 1509.12

These three numbers are all extremely close together. Any significant move above or below these numbers could prove to last for a couple days. With the weakness in volume the last 2 days, a move below could come with an increase in volume. The next opening range levels are 1500.43 and then 1476.76. How the market acts around these numbers could be important.

Recent Low 1487.41
+2 Level 1476.76
Fib Extension 1453
+1 Level 1453

This is an intra day chart of the September contract for the S&P 500 futures for the last week. It shows the size of the sell off and how the market is in an area that the recent 2 day rally could stall. This minor trend line is important to watch. It is also worth noting that this is the September Contract, and some rollover trades effect volatility. This Friday is when June options expire and June futures will stop trading and September will be the lead month. The opening range system can be applied to the first 3 days of this new contract.

Here are some corresponding charts for the OEX S&P 100 and the Nasdaq Composite Index.


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A trade that worked great back in February/March might work again if commodities stay strong. The post Red Right-20 Bingo Cross covers the idea. Below are the current charts.

Has the realization that rates are going higher caught people off guard? From the look of this chart that is what has happened. This is magnified by the roller over from the June contract to September being the lead month. Things could calm down, but there are still people on the wrong side of this trade.

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