Downside volatility have been contracting since breaching the bearish blue moving average on the 120 minute intraday chart on Thursday last week. This is made obvious with the size of the pullbacks shrinking from -46 on Thurs to -37 on Fri to -24 on Tues.

Downside volatility can be expected to expand when 1) price reaches bearishly sloped 1 month moving average on the daily chart (now at 1247) and 2) price crosses below the now bullishly sloped blue moving average on the 120 minute intraday chart (now at 1184).

Yesterday's trade set a Merkel-Sarkozy high around 11 am and a Merkel-Sarkozy low around 12pm CT. Trade triangulated inside that Merkel-Sarkozy high and low. Notably the contracting triangle bottomed at 215 am, marking a low point in European confidence. Confidence strengthened during the EU session and the SP500 broke out of the triangle to the upside shortly after 530 am CT.

We are now heading to the close of the European markets, and the SP500 is giving back all its overnight and early morning gains. New highs continue to be met with selling pressure this week. The selling pressure into the close of the European markets also indicates European investors were confident at the opening of their trading session, but not so confident that the SP500 could stay bid into the close of their session.

Resistance will be fierce at the 1212-1219 and specifically the 1214-1219 NFP highs of Aug 5. I do expect the bulls will get pretty well crushed trying to bid the market through this area, and I will have more to say about that as and when the occasion arises.

The 100x4 paf shows support at 1188-1189 and 1184, which is the 215 am low last night and the housing start low on Tuesday, and the high of last Thursday. 1202-1205 is resistance on the 100x4 chart.

Click on image to enlarge!

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