I love trading so much that I am often sad when the weekend comes. This has been a very productive week, and I will be sad to see it go. Looking forward though, I am seeing a market that was greatly impacted by an FOMC meeting this week that might be looking to equalize a bit early next week. The last 5 trading days have been nothing but up, and it is doing this in the face of more problems in Europe, weaker than expected GDP and other factors. Those thinking people around us might shrug their shoulders, but what do you expect for a market that has no price discovery.
I saw an interesting article this week on the growth of China and its surpassing of the USA as an economic, manufacturing and military power. At some point China and other nations will stop using the dollar; a factor that has made it possible for the currency to fall less than it otherwise should have (and by a wide margin). When foreign countries hold your currency, and you devalue it, it has less impact, since there is more in circulation. Because of this and the holding back of interest rates at false levels for extended periods, we await backlash. That is my opinion of course, because the FOMC will deny this up and down. I look at things this way however; if it won't work in the economics in my household, then it won't work elsewhere either. Perhaps some readers might put due pressure on their congressional representative, as these guys are the real culprits.
Enough on that for now. An analysis of this week shows a point of control at or about 1362.75 on the ES Emini S&P futures. Above and below, we see 1402.75 and 1382.75 respectively. We are closing for the week in the upper range of this. I would expect at least a test into the 1362.75 area before heading higher. Most rallies begin with short covering, and that is the pattern we see for today; somewhat of a P formation, where most of the day's volume is concentrated at the top. This types of formations are often retraced, unless they are flowed by new buying. So, with this in mind, Monday morning will tell us a few things. On the profile for today, I am seeing 1400.75, 1396.50 as a value area with a point of control at 1398. If we open higher on Monday, this will be decidedly bullish. An open below 1396.50 will be pretty bearish.
I have mentioned in recent weeks that using the Daily Targets I put out on Twitter will be the best way I can be of assistance. The coming week is no exception. So keep an eye on these. The strategy is to catch a tend trade into the target knowing the probability of being hit. I wrote about this in the How to Use the Daily Targets blog post.
I am also advising to use the volume profiling / market profiling strategy as I have described above and in other articles. The way to do this is to get the last post for final value area, or get it first thing in the morning off the Twitter feed. I already gave those levels above, so I will not rewrite them here.
On the range front, I said last week we had been seeing ranges in the 35 point area. This week came in a bit higher, so our average is 39 points of range in the ES futures. We did not manage to have above average volume for the week,. So, we have an up week with slightly less than average volume. This also supports my idea that the rally is Fed driven.
My weekly trend indications show the trend as down, with the monthly trend still up for the last 4 months. As we move towards summer, there is a tendency, particularly in years where a low is made in October for there to be a high in mid June. This is not a trade to take, it is a seasonal tendency. May is often a fairly volatile month leading into this seasonal peak. So we will see if we follow that pattern going forward. The half day trend is showing we are nearing a cycle peak and is also showing some weakening in momentum over the last few days. This time frame is often good at persisting in its indication for about 2.5 days or so, so, if we start to see a roll over early next week, we could expect an average excursion to last a couple days or so. The quarter day trend is showing some upside as would be expected after today.
So, all that being said, keep an eye on the value indications next week. If you are unclear about them write and remind me. I'd be happy to do that since I do it every morning anyway. The length of such an analysis is too long for twitter however (which is why I don't post it there), so keep that in mind.
My favorite thought I heard this week was; "A free market is a market free of debt." I do not remember who said it, so I apologize for not giving credit for such a great saying.... something worth pondering as we leave the markets for a few days and a nice weekend :-)
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