The Rooster Call: S&P Remains Sideways Within Range

Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day

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Good Morning Traders!
Yesterday’s market action provided another strong bullish price bar. The unexpectedly double-digit negative New York FED Empire State report sent ES to our support line of 2075. Next, as if by magic, a report on housing recouped the lost ground and more sending price to 2100.50.

In the big picture, ES remains side-way lurching up and down withing the large range.  Today is Tuesday, therefore seeing ES is red overnight/pre-market is no surprise for those noticing the “turn  around Tuesday” phenomenon. Day traders should watch for any reversal move taking price over yesterday’s high. The lines in the sand are at 2104, 2110, and finally 2123.

The reason we are sensitive to a reversal back higher today is the practice of ES rising into Friday’s equity option expiration.  This is another one of those “more often than not” occurrences. We have noticed the run up over the last three months taking price to maximum resistance only to fall after options expiration. Just be aware.

We have discussed last Wednesday’s price bar as a reversal day and this comment has held. If price continues moving higher on ES, a run to 2123 area is expected.

Our other standing comment is about ES showing us a “triple top.”  The triple top is a universal topping pattern…a really basic pattern in technical analysis.  Only a new high can negate this set-up.

David Stockman, points out the S&P 500 index has risen to  2100 13 times since February. We are not perma-bears, but we do question where will the next catalyst come from to break the market’s side-way channel in place since February?  There is no catalyst on the horizon of importance.

USA equity index futures markets cannot climb a wall of worry without falling back down maintaining the side-way channel. The side way channel is maintained by the belief, “don’t fight the FED” and a lack of alternatives for trillions of dollars in my opinion.

OVERNIGHT – As the Chinese government underwrites the Chinese stock market, today’s 6% drop tells us humans are being…well human looking for any increase in price to exit what has turned into a dangerous game. The government takes action lifting the Shanghai and Shenzhen Composite indexes and worried retail traders take advantage of the price rise so they can dump stocks en mass. The drop in China’s market has caused a fall in all global equity index futures.  Copper responds with a fresh 6-year low. Aussie dollar lower.

Today’s USA trading action must factor in Walmart, the world’s largest retailer, cutting full-year earnings guidance. This is a market negative as the firm reports lower second quarter earnings. Separately, Home Depot reports better than expected earnings and raises full year sales/profit forecasts.

British Pound shows strength on the back of a report showing prices rose 0.1% compared with last year.

Economic Events
8:30 Housing Starts – Starts Better than Expected. Permits, a measure of future activity were lower than expected. A neutral report based on lower permits.
8:55 Redbook Chain Store Sales

Wednesday we have Consumer Price Index at 8:30AM ET.

 Markets

  • US markets are poised to fall based on bias provided by Nikkei 225 and DAX.  Housing starts lifted USA equities off the overnight lows.
  • VIX futures are totally asleep.
  • Bonds are incrementally lower.
  • US dollar is flat.
  • Euro is lower.
  • Yen is side-way asleep.
  • Pound higher breaking resistance today.
  • Canadian dollar lower.
  • Aussie dollar lower thanks to Chinese stock market drop.
  • Crude revisits low, but the USA 9AM ET open can certainly change this.
  • Natural gas drop slows down as price nears support area.
  • Gold incrementally lower.
  • Silver drops back to $15.00 area as traders take profits.
  • Corn flat.
  • Soybeans edge lower. Day traders monitor November Soybeans.
  • Wheat a non-event.
  • Cotton finally sees a red day after USDA report spurred a power rally last week.
  • Cocoa higher.
  • Sugar flat.
  • Coffee consolidates.

Think About This!
Navigating the markets in August is tough. Volume is lower as vacations wind down in the USA and Europe has taken the month off. We expect more action starting in September that is characterized by greater follow-through either up or down.  Now is the perfect opportunity for learning how you can trade trend and momentum. 

Have a great trading day! 

To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.