Your MUST-READ Morning Stock Futures Cheat Sheet: Still consolidating

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The Precise Take – Still consolidating

Big Picture Analysis: We’re entering the news heavy part of the week, though only one more report is out today, which is the Housing Market Index at 10:00 am EST.  Three big reports are released tomorrow before the bell, followed by Philadelphia Fed Survey at 10:00 am, with options expiration on Friday.  While news out of Europe has been driving the US futures overnight (and nearly all the gains in this rally have been from the overnight gap), focus during the day is steadily shifting to domestic headlines.  If this reverses concurrent with a decisive break in the ES below the January 13 overnight 1272.75 low, a short term correction could build steam, going as low as 1210-15.  Otherwise, expect higher highs.

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