Thursday, September 17, 2009

Midday Briefing for September 17th: Reversal

1:33 PM CT - I added the top chart to show how we have bounced off the market lows, but so far have stayed below the volume bulge from the morning (marked off in dark red). As long as we stay below the morning's value area, we are accepting value lower--and below the market's VWAP, suggesting a consolidation of the market's strength and possible start to range trade.

10:48 AM CT - I added the middle chart to show how that 1069 area mentioned below has, indeed, acted as resistance, even as net buying interest has kept us above the overnight lows. The result is that we're building volume--and thus accepting value--in a relatively narrow price range between 1063 and 1068. We will need to see volume come into any possible breakout from this range to sustain a breakout move; otherwise, fading the edges of the range has been profitable for quick trades.

Note how volume shut off in the ES futures above 1069, as buying after the Philly Fed number could not lift stocks back to their highs. That emboldened sellers, who pushed us back below VWAP (red line) on expanded volume. This leaves us in a two-sided mode, trading around VWAP, as the market consolidates its week's gains. It also sets us up for viewing that level above 1069 as important resistance; the overnight low near 1060--from which we launched this morning's rally--represents support. A move below that 1060 level would represent fresh selling and more significant profit taking/trapping of longs.