Monday, June 29, 2009

Pre-Opening Briefing: The Context of the Market

We're trading higher in the S&P 500 e-mini (ES) contract this morning before the open, thanks to strength in Europe, but a broader look at the context of the market move gives us a little pause. Of course, the tipoff to the context came from an investigation of the trend status of the S&P 500 sectors and the status of the market indicators posted weekly. Both show that we are in an intermediate-term trading range, in a market that has been losing momentum and strength.

As you can see above (middle chart), this morning's strength places us near the top of a several day range. Even further out (bottom chart) we are trading at the upper end of a multiweek range defined by the highs of 6/19 and the lows of 6/23. How we trade relative to the resistance at the tops of these ranges will be of crucial importance today and this week. A failure to sustain strength above those highs would have me looking for retracement back into that range, toward the 900-area midpoint. A successful upside breakout would target the June highs. Either way, standing near the top of an extended range should set up a worthwhile trade. I'll track my thinking on this with intraday Twitter posts (follow here).

9:37 AM CT - I added the top Market Delta chart to show how we traded down toward the overnight lows in ES before rallying furiously and taking out the overnight highs. Note, however, that both the NASDAQ and Russell Indexes are below their opening price levels. The large cap stocks are leading this morning; to sustain an uptrend, they'll need to bring the others along. I'm watching TICK for signs of broader market strength. With volume at the market offer handily exceeding volume at the bid in ES, it is difficult to sell this market despite current non-confirmations.