S&P Futures Update for Oct 13, 2014

Big Picture perspective: As most of you know, the Fed announced their tapering decision back on Dec 18, 2013 which will bring their Quantitative Easing program or QE3 to an end this month. As a point of comparison, two months following the end of QE2 in June 2011 resulted in a 20+% correction. Other reasons contributing to Stock exchanges declining worldwide were fears of contagion of the European sovereign debt crisis and the credit rating downgrade of the United States as a result of the debt-ceiling crisis. I am not suggesting that we will for sure see a similar decline or that my bias has suddenly turned bearish but it is clearly a scenario that is worth considering for those of you that swing trade. As of Friday, the market has corrected approx. 6% off the all-time highs. The monthly bar chart below shows the market's historic rise on the back of the Fed's QE programs.



The broad market Russell (TF) Futures has been the weakest of the 4 major indices. I am including the monthly bar chart below to offer another data point as this index broke below an 11 month Balance on Friday and settled at the session lows. Remember, the longer the markets remain in balance the more dynamic the breakout. Only if we Close back above the 1064-68 area on a weekly basis will this be a failed breakout to the downside. Further continuation to the downside targets the next monthly low at 1017.70.



Now to the S&Ps. As of Friday's close, the market is approaching a 20-week balance low. The 1882 level was tested once before in the overnight session in the week ending 8/8/14. This is a go/no go level and offers a great trade location depending on your bias. Balance trading scenarios apply: (1) we get a look below and fail - if that happens destination trade becomes the opposite extreme or (2) look below and accelerate then the destination becomes the next weekly low at 1849.50.


 
Coming into Monday, my focus will be on the late day downward Spike from Friday.

1. Opening and trading above the downward spike would be considered positive since the price probe or spike is being rejected leaving a buying tail. Target becomes the prominent POC at 1917 and 2-day balance lows at 1918-20.
2. Opening within the spike shows price acceptance and keeps the break intact;
3. Opening and trading below the downward spike reveals that price has not auctioned (probed) low enough to cut off the selling allowing for two-sided trade. The auction is not over.
4. The top of the spike - 1906-07 area is “resistance”.

The overnight trade coming into the Monday session will provide additional information. New lows in the overnight session are definitely a bearish sign.