May 182010

Another interesting set of conditions today though the focus is a bit more clear I suppose than yesterday. Volume yesterday was quite mixed as expected with the short covering rally in the Euro pulling us to the long side Overnight we are also mixed with the broad market trading long but institutions fairly significantly favored to the short side – though the volume contribution there isn’t exactly huge. The 10s have also really flattened out overnight though it appears a strong bid is starting to develop once again. The PPI is down and starts are up a bit, though the permits really got hammered pointing to a tough next period, but we really didn’t see much reaction in the ES to either – nothing new. Most all economic releases are well priced in every day. We only watch them for the one in a thousand chance there is some surprise that nobody fronted. LOL. The Euro continues to grind up as well though with less conviction. Given all of this I think the short side holds at least the 20/21 support for now though I wouldn’t be surprised if we test it. We will just be watching the VIX as always to see if it continues to come off as it did late yesterday. If so, we may see some rally conditions, but the 50/51 level should provide significant resistance. Beyond that 59/60 is the next significant line in the sand. Tough to call, but we really don’t need to. There are lots of little scalp opportunities today and a few key levels which given the mixed sentiment should hold for at least a half rotation which is always what we seek. Just watch the order flow along with the 10’s, Euro, Carry Trade & VIX to spot trend pressure coming out of the levels. If they don’t react negatively it will very likely work out fine. The OH has been moving all morning so we will only look to scalp it if at all. The 45/46 R1 area may also be a fade, but we will treat as a quick scalp most likely. Same goes for 48.50 though that one shows more promise. We may just wait for 50/51 as that is the highest probability short for the day in our view. As for long fades 41.50 and 39.50 may be nice little scalp ops, but the first “real” rotational op is at 35/36. Yesterdays strong acceptance adds lots of strength to that level. Beyond that we like 29/30 which is the OL and for some reason I like scalping the 27.50 acceptance area as it was also a strong area yesterday and the closing VWAP. Beyond that I will likely wait for 20/21 which as I said I believe is going to hold as interim support if it gets tested. I like the structure today, but as always I will be watching correlated markets very closely. Debt and currency rules the roost – especially now more than ever. The Euro and 10s have been great leaders of the Spoos lately…

PS: The 50/51 short fade is also the center of a major low volume area on the composite profile for those of you following composites. Obviously this adds strength AND volatility likelihood to the level. If it does break through expect a particularly fast market straight up to 53/54 or even 55/56. Our composite is built from the last major swing high of October 2007 through the lowest low of March 2009 to present.

 Posted by at 9:16 am

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