Looking at the Daily

I did not have a chance to publish analysis on the Daily chart this weekend. But I did have a look and do some basic analysis. For what it is worth, I did expect a bounce today - though I did not think we would close above 1060. Open the following daily chart and let's speculate as to what happened:



First, the moving averages. Clearly, we have been rallying for some time with all of the MA's moving upward with the 20p on top, followed by the 50p, then the 200p. Wow, what a bull configuration! The only problem we see is that the price action is trading at a level almost 20% higher than the 200p MA. This is a bit unusual and many feel unsustainable. Before moving on, note that on Friday the price action came down and touched the 20p MA. Ideally, price action would have broke down across that average when the bears had the momentum - but it did not. We'll pick that up later.

Next, lets take a look at the yellow trend line that runs along the lows formed during this rally. We see some very nice contact and reaction off of this line. Again, in an ideal bear scenario - this line would have been broke on Friday - but it did not.

Next, note the grey fib grid on the left (I placed it there for clarity sake). It is stretched from the low of the last rally leg to the intraday high set on last Wednesday. We hit the 38% retracement level on Friday - and kept going. This is a good bear scenario - but the 50% line needed to be tested and fail - and that did not happen.

These three forces - 20pMA, rising trend line, and 38% retracement level forcasted a bounce today. In fact, I played the bounce with an expectation that the downtrend will resume this week. I sold my insurance options at a premium and shorted the ES at the high of the day. My only disappointment is that we did not retrace deep enough from the high. Open this final blow-up of the hourly chart to see why.



I was hoping for a close below 1060 as this would be below the 50% retracement of the last three sessions. A 50% retracement is not uncommon and many analysts wait for this level before resuming the trade with the prior trend.

So what happened? Perhaps the thin holiday trading exagerated price action at the close. The market clearly had a strong morning rally, but then it formed a rising wedge which broke right around 1064. From there, prices just rolled until the final 30 minutes of trade. During the closing minutes most of the price action can be discounted as it is a result of traders going flat.

Unfortunately, we can not conclude much for the bears or the bulls today. The balance of the week will tell us more - starting with tomorrow.

I am particularly focused on a break below 1060 and 1056 - this could lead to a full retracement at 1041 and a continuation of the down trend.

Alternatively, a break-out aboive 1065 would be very bullish and could result in a test of the 1073 seller and of course the intraday high of last Wednesday.

Good luck out there.