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Bill Duryea founded the IOAMT with the goal of teaching traders how to read data, identify important information and act on that knowledge. The IOAMT maintains a historical database of market generated data to generate its proprietary statistical calculations from which its daily trading levels are derived.
This recap video provided by the Institute of Auction Market Theory (IOAMT) reviews charts of the S&P cash index for the week of 2/28/10 to provide a long term perspective of the current market condition.
The Weekly Recap: February 28th, 2010
 Click on image to enlarge!
Throughout the week, we post the fundamental NEWS, i.e. FED monetary policy, corporate earnings, and economic data that potentially could provide a catalyst for the daily session. The information is available through a variety of financial media sources. However, once the NEWS is out the market trades off technical levels, i.e. prior support and resistance levels.
While market behavior is a combination of fundamental and technical data, ultimately all market s are supply demand driven. Therefore, where the buying interest and selling pressure are dominant within the current trading range is valuable information for all traders. Observing the market’s reaction as price probes key areas of support and resistance provides direct feedback from the market participants as to how they view the NEWS.
IN-the NEWS
Uncertainty concerning Greece’s sovereign debt continued. EU, the sovereign debt crisis shows no signs of going away, and although the spot light remains on Greece, contagion fears regarding Spain, Portugal and Ireland linger. 10-year Greek bonds were expected to be priced this week in a key test of investor appetite for peripheral paper. The 10-year Greek spread versus Bunds deteriorated back towards the 350bps area, forcing Greece to postpone the sale. Meanwhile both S&P and Moody's issued cautious statements regarding the country's credit rating.
The US February Consumer Confidence index hit its lowest level in almost a year.
The FDIC released a dire quarterly troubled bank list.
The FDIC increased the number of institutions being monitored by 27% q/q and noted its deposit insurance fund is now deeply in deficit, at -$20.9B compared to -$8.2B q/q.
Wednesday as Fed Chairman Bernanke and Treasury Secretary Geithner testified on Capitol Hill.
Monetary policy report: key rate was likely to stay low for an "extended period."
Fiscal policy, Bernanke warned that the government's current budget path is not sustainable given CBO projections.
Thursday saw steep declines in equity markets thanks to the softer than expected weekly claims data.
Thursday’s short covering rally was ahead of the second reading of US Q4 GDP on Friday morning.
The US GDP data was a bit higher than the advance reading, hitting 5.9%.
Fed said the recovery "does not feel like one" while BoE Governor Barker warned the UK could see another quarter of negative production (but would not describe this outcome as a "double dip").
US housing data: January Existing Home Sales index fell to its lowest level since June 2009.
U.S. Treasury continues to raise money at a historic clip. Yields moved markedly lower despite $118 in coupon supply this past week. Demand for U.S. Treasury remains robust. The US benchmark 10-year yield has given back nearly 20 basis points since Monday and the 2-10 year spread has narrowed some 15 basis points from historically high levels above 290 bps.
Currency Trading
The dollar bid was not a one-way street, and the reserve diversification issue was circulating in the background.
There was more chatter that the Chinese Yuan may be revalued. Dealers said there was plenty of talk that the Chinese government was conducting a series of stress tests of currency appreciation on labor intensive industries. There was also talk that China might be preparing to raise capital adequacy ratios to 11.5% from the current average of 11.0%. China Commerce Minister Yao said he cannot rule out a trade deficit within several months. Note the trade surplus has declined for three consecutive months, most recently falling to $14.2B in December, marked by faster import growth. The official data for China trade figures and new loans for Feb expected in 2nd week of March.
Gold: Unsubstantiated press rumors that China would buy 191 tons of gold being offered by the IMF made the rounds (despite the existing offers from another central bank). Official statement, China should keep buying gold over the long haul and advised that any price declines would present excellent buying opportunities. A spokesperson for China's Foreign Ministry stated that China would invest in reserves carefully and seek liquidity. He called on reserve currency nations to increase market confidence in their currencies.
Technical Perspective
Monday: February 22nd, the S&P 500 traded up to re-test resistance at the February 19th high at 1112. Monday’s session was a neutral day. Monday’s trading range was within the range of the prior day sessions. The entire day range was contained with the range of the first hour of Monday session; the A-period high 1112, the B-period low 1102. Volume on the NYSE was below average.
Tuesday: S&P futures opened at Monday’s settlement, selling pressure was dominant at the open. B-period broke-down below Tuesday’s neutral day low at 1102 and traded down to re-test near term support at 1092, the February 17the low. Selling pressure continued during Tuesday’s mid-day session. The daily range extended below the B-period low trading down to 1090 during J-period. During the J-period probe, responsive buying was present at 1090, the selling pressure ended and the S&P auctioned up off the low to 1097 at the close.
Wednesday: The S&P “gapped” above Tuesday settlement during the overnight session. The A-period high was 1102. Selling pressure auctioned price back down to fill the “gap” at 1097. The B-period pull-back discovered the buying interest that at Tuesday’s low was still present within Tuesday’s settlement range. S&P March futures found responsive buying at 1093. Initiated Buying auctioned price above the A-period high at 1102. D-period traded up to 1105. At that point up-ward momentum ceased, the price action “paused”, consolidating the early gains and price traded horizontally, between the H-period high at 1105 and the K-period low at 1099. Wednesday’s session closed at 1103.
Thursday: S&P futures “gapped” below Wednesday’s settlement during the overnight session. Selling pressure was dominated during the pre-market session. The S&P opened below Wednesday low, and went on to sell-off below Tuesday’s low breaching near term support at 1090. At the open, price discovery found responsive buying at 1084, the A-period low. During C-period price retraced some of its early losses, trading up to 1090. The subsequent pull-back, to re-test the low during E-period found support at 1085.
Friday: Following Thursday cover the rally continued during the overnight session with the S&P March Futures trading up to 1107, the February 22nd high, just below near term resistance at 1112. Price discovery at the open, auctioned the S&P down to 1096, the L-period low from the prior session.
Note: The initial designation for a technical reference point is a daily high or low. Correlated or parallel price activity gives the reference point additional significance. For example: the February 22nd high at 1111 equaled the previous day’s high. This view is derived from Bayesian probability logic. In the event that the selling pressure, resistance at the high results in price auctioning below the daily low of the initial reference, i.e. the February 19th B-period low at 1009 the certainty regarding designating the two day high as significant resistance [near term] is resolved. Indeed, an argument can be made that settlement on February 22nd at 1107, equal to the high at the next day’s open also become a candidate for the designation of potential resistance, should the market retraced back up to it.
During an Intraday day certain price levels may play a structural role in the daily distribution. Price levels within the daily range, above the daily low and below the high are deemed micro-intraday reference points. Such price levels may or may not have any significance during the next day’s auction. Micro-intraday reference points are more likely to be significant following a trend day. There significance only becomes apparent during the price discovery phase following the trend day, when price either pulls-back in search of support and/or retraces in search of resistance.
On February 16 the S&P broke-out above its February Consolidation range high at 1078. The break-out occurred during the overnight session. Following the break-out, at the open the S&P pulled-back in search of support [price discovery] which it found at 1078, the A-B-period low.
During the break-out, Responsive buying was present at the1078 A-B-period low. February 16 break-out and the subsequent directional move that followed consisted of the initial drive at the open, which “paused” at 1089, the E-period high. During H-period price auctioned back down to the E-period low at 1086, before the trend resumed during L-period, resulting in the S&P trading up to 1094, the M-period high. Settlement was at 1093.
The reference points for the February 16 break-out session are:
Daily low 1078,
Micro-intraday support at the 1086/E-period low,
The break-out above the intraday consolidation at 1090,
The daily high at 1094,
Settlement at 1093.
On February 17th, the S&P traded down to 1093 during E-period and went on to auction above the opening range A-period high, settling the session at 1099. The significance of the 1093 was therefore the previous day’s settlement and a daily low. On February 18, support at 1093 was retested during the overnight session and the S&P went on to make a higher high. 1093 was re-tested again during the February 18th overnight session and the S&P went on again to trade up to a higher high. At the close of the February 19th session, when the FED rate cut was announced the S&P sold down to 1093 in the afterhours. The market did not re-test the overnight low at the open and went on to trade up to the 1111, the current two day high.
Therefore, Tuesday’s break down on the release of negative NEWS was anticipated. Argument can be made that Tuesday’s he pull-back to re-test support at 1093, the minor breach down to 1090 and the subsequent develop at the low; along with Wednesday’s rally above Tuesday settlement all fall within the context of the February 16 break-out and a recovery attempt back up to re-test the 52 week high.
However, Thursday’s session was more problematic. Wednesday’s rally contained a degree of short covering from the previous day’s sell-off. Particularly the move up through Wednesday’s A-B-period range can be viewed in the context of short covering. The intraday consolidation between the H period high and the K-period pull-back was transacted on below average volume, indicating a lack of institutional participants.
Tuesday pre-market sell-off was therefore not without context. The breach of near term support at 1090 and the A-period probe to 1085, almost 20 points below the prior day’s close indicated that even the long at Tuesday’s low had reason for concern.
The negative bias at Thursday’s low indicted selling pressure across all S&P sectors. Thursday’s decline of more than 1.5% in the first hours of trading was the 28th time over the last twelve months the S&P had declined by that percentage at the open. Statistically following such occurrence the average daily returns have been negative. However, there have been patterns of intraday reversals self-similar to that of Thursday’s session. In hind sight, the lack of continuation, i.e. Thursday’s E-period failure to make a lower low was an indication that the selling pressure had abated. Still the short covering back up to the previous close is always a difficult outcome to determine in real time.
Friday’s overnight high concluded the short covering rally, with the S&P trading up to 1107. Friday’s opening range price discovery, i.e. the pull-back to 1096 was consistent with Thursday’s short covering rally. However, Friday’s session was another light volume affair, providing light in the way of conviction that the S&P will be able to penetrate near term resistance at 1111 and continue with its recovery attempt back to re-test its 52 week high.
The basic description of this week’s auction is presented by IOAMT to contribute to the trading community’s broader understanding of the weekly price action observed in the S&P 500 futures contract.
If the ideas and concepts of auction market theory appeal to you and you would like more information, you are invited to visit our website at www.IOAMT .com.
Active intraday traders are invited to join our morning strategy session hosted in our Live-Forum.
Technical Reference Points
Resistance
Potential up-side Trading Range the October 2008 high at 1167
January 14th high at 1148, the 52 week high
Minor, 1138, the Mean of the upper cluster
1125, the January 20th daily low, the break-down-point at the bottom of the upper trade cluster
1119, January 21st, K-period minor intraday resistance
1115, January 22nd high
1112, the February 19th High, February 22nd overnight high
1107, the February 23rd daily high
Support
1096, the February 26th daily low
1085, the February 25th daily low
1078, February 16th low and the upper limit of weeklong consolidation range
1053, February 8th Low, and the lower limit break-down point
1044 in the Cash, 1040 in the March Futures, the stopping point of Friday’s sell-off [un-tested]
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