Saturday, January 24, 2015

S&P Futures Update for Jan 26, 2014

The scenario laid out in last week's blog post played out nicely for those that swing trade. As of Friday's close, Jan continues to trade within the Dec monthly range - denotes balance - longer term trend is still up. The weekly bar below shows a 3 week Balance. Balance trading rules apply from a swing trade perspective. Scenario 1: A break out above the 2062 level targets the all time highs at 2088.75. Scenario 2: The market may look above the 2062 level and fail - the destination then becomes the other end of the 3 week balance. Scenario 3: Or it may stay in Balance - i.e. the 3 week range. The profiles below provide some additional clues.


While it was shortened week due to the MLK holiday there were excellent trading opportunities during the week. The much awaited QE announcement from the ECB came out on Jan 22 which clearly accounted for the rally we saw this week. The question now is which of the 3 scenarios is more likely to play out this week. The notes in the Profile picture below are fairly self explanatory. The case for a bullish scenario is:
  1. No excess at the all time highs at 2088.75 - poor high coupled with a prominent naked POC at 2086.25
  2. Clean, clear excess at the 3 week Balance Lows.
  3. A poor high on Friday at 2057.25
  4. Friday's Prominent POCs at 2053.75 coupled with the fact that traders went home "short in the hole"
Going into Monday - my focus will be on the late day Spike down. Spike trading rules apply. The key references below Friday's close are the naked POC from Thursday at 1939.25 and Thursday's pull back low at 1936.50. Acceptance below these levels is short term negative. Staying above these levels increase the odds of a breakout above the 3-week balance and potentially a test of the leg highs. Although my personal bias is short term neutral to bullish - let the market tell you which way we are headed.