Wednesday, November 17, 2010

Long Swing Position Update

Thursday Nov 18 Update:
Globex Pre-Open,
Third Target Reached at 1191.50
for a GAIN of  + 120 Pts

Wed Nov 17 after the close ( Globex ) Update:

Long Swing Position Second Target Hit ,
Gain :  + 114.50 Pts or $ 5,725 per futures contract
Breakout from today's NR7 and Inside Day
Today was a TTT Buy Day

Recap : Long ESZ10 at 1071.50 ( Institutional Number and Key Level )
Trade Setup : Tuesday Nov 16 RSI ( 2 ) Reading of  2
As explained on this Blog, this setup had more than 80% expectancy of success.

Concern over Communist Chinese inflation and interest rates has been roiling the commodity markets. Communist China imposed price controls on some commodities and there is talk that they will raise rates on Friday.  Europe continues to wrestle with some recalcitrant partners about the Irish situation. Talks are beginning in Dublin involving the EU and IMF; there is also talk that the UK may get involved.  CPI was soft and smells of deflation.  The core CPI rose at an annualized 0.6% rate.  Housing starts were also weak; multi family construction has collapsed in the past months.  The weekly crude inventory report was out at 9:30 AM CT. 

Yesterday, the bears made their presence known and have likely regained control for at least a week.  From a seasonality standpoint, we look to the November seasonality map from MarketSci, which suggests bears have the advantage until Monday.  We would also add there is bearish seasonality from the 2/5/7s Treasury auctions through 1:00 pm on Wednesday. 

Note, however, the strong bullish seasonality for the days just before and after US Thanksgiving, which could allow for a strong push Wednesday afternoon and Friday when most traders are absent (also recall last year’s Dubai debt shakeout).  Trading during options expiration weeks, such as the current week, typically favor mean reversion as opposed to trending (though, the exceptions tend to be extreme).

Accordingly, we will be on alert for a potential reversal rally today or tomorrow, with the maximum upside target of 1194 (around the 20 day MA and a 50% retracement).  Bulls need to reclaim 1194.50 to have a shot at new highs.  The markets are at an important juncture with respect to long term implications, and I see three potential scenarios unfolding: Available to Subscribers Only.

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