Thursday, August 20, 2009

Morning Briefing for August 20th: Back Into the Range

As we can see from the ES futures before the open, we started out with a break above yesterday's trading range on the heels of strength in China. Weak SHLD earnings took us off our highs, and then disappointing 7:30 AM CT numbers have returned us to yesterday's trading range. As always, when we fail on a breakout of a prior day's range, you want to identify that day's pivot level as your potential price target. I post the pivot level each day before the open via Twitter; note that 70% of all trading days trade back to that pivot point.

Meanwhile, we've seen a rollback in those intermarket risk themes: gold and oil down, the U.S. dollar stronger vs. euro, and 10-year Treasury rates coming down. I'm viewing us as in a broad trading range defined by today's overnight highs and yesterday's early lows. Ultimately, I believe that the recent weakness (Monday through early Wednesday) and subsequent bounce are part of the market's extended topping process. That means that, as long as we cannot break above today's overnight highs, I am ultimately expecting us to test the Monday and Wednesday lows. If recent themes hold, any such test should be led by those emerging markets, particularly China.