The Hourly Chart

The action over the past few sessions has been very different when compared to typical sessions over the last 6 months. Different in the sense that the market seems "free" to do what the participants ask. I guess I'd say there seems to be an absence of manipulation. Frankly, I think this has spooked a lot of participants. After all, who can remember when we had a free trading market? A market where selling pressure drives prices down and buying meets actual resistance. A market where you can make decisions without second guessing your analysis!

Anyway, yesterday I addressed the daily chart and the expected bounce after the thrashing the market recieved last week. I also stated that I was disappointed that we did not close below 1060 yesterday as 1059 would have been roughly the 50% retracement of the down leg. Contnuations typically occur after the 50% retracement.

Open the hourly chart for the last 20 days:



The chart has the 20p MA and 50p MA along with 20p Bollinger Bands. I also include 3 Fib grids. The largest grid is dragged from the low of this last major rally at 993 to the high set of 1080 set last Wednesday. This grid is labeled Full Rally Fib. The Down Fib stretchs from the high on Wednesday to the low of 1041 on Friday. The Lastest Fib stretched from the low on Friday to the high set this morning at 1069. These fibs are important to determine the possible support and resistance levels for price action going forward. Finally, note the yellow trend lines that follow the descending highs and lows of the last 5 sessions. These too are important.

Some high level observations....

1. The 20p MA is rising up towards the flat-descending 50p MA. This can be considered bullish - but the angle is not sharp and the last two bars of the price action are descending.

2. Price action drifted sideways and has reversed after piercing the lower BB Thursday. We now see the BB closing and hence, consolidation in the price action. Though we have traded above the 20p MA - we still have not touched the upper BB. Either price must rise or the upper BB must fall in the coming sessions.

3. Price action closed below the 50p MA today. This is bearish.

4. Price action is contained within the trend lines - though hovering close to the upper trend line. It is important to note that the last attempt at the upper trend line met with increased resistance and was not able to touch.

5. Price action is resting just below the 50% retracement level of the Down Fib and just above the 38% retracement level of the Last Fib. Downward movement from here would signal a possible retracement of Monday's rally. This is bearish.

6. Finally, the stochs are still over-sold and the RSI negatively diverges when compared to the highs in price action set last week. This is bearish.

Tuesday is ofter considered a turn-around day for the week - setting the tone for the remaining sessions. This combined with the fact that the price action has failed in its first attempt to test Wednesday's high suggests that we could be in for some downward action. Open the following magnified view:




For price to move higher, we must see a break of the upper trend line at approximately 1065. From that point a break above 1069 would be a signal that we will see a test of 1080.

For price to move lower, we must see a firm break below 1060. This would signify the continuation of the last down leg. To get the continuation we will first have to fully retrace this last rally which started on Monday. This requires breaks of support at Last Fib levels 1059, 1056 (also the 20p MA) and 1052. If we get these in the next session - 1041 is a very like target with the bottom trend line becoming the next level of support. My calculations suggest a possible test at 1025 by end of week. This lines up well with the lower trend line and the 62% retracement of the Full Rally Fib.

I did not see much today to change my bearish outlook for the S&P. I remain 100% short in my cash securities while I continue to profit from my intraday ES futures trades. I will re-consider option spreads once we break either of the trend lines.

Good luck out there!