Your MUST-READ Morning Stock Futures Cheat Sheet: Higher highs

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The Precise Take – Higher highs

Big Picture Analysis: The ES continues to tack on gains, reaching new highs yesterday into the close and again overnight to 1309.25.  The three reports at 8:30 am EST this morning did not move the markets much (CPI was flat and Jobless Claims a bit better than consensus), but we still have the Philly Fed Survey at 10:00 am, which can be a big market mover.  With options expiration tomorrow, we will be on alert for a spike high high on the news today and subsequent reversal that might mark a short term top.  Barring that, we might expect the upward drift to continue.

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.

To contact the reporter on this story: Bob English at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com