Tues Dec 30th 2003
Neutral Mode with Upside Limited
By Mike Paulenoff, MPTrader.com
It’s no coincidence that it’s Tuesday and the markets are resting. I hesitate to suggest that this would be a turnaround Tuesday, but oftentimes when you get rallies in the proceeding 3-4 days into a Tuesday, Tuesday seems to be the reaction day.
In this particular case, the indices are consolidating right at their highs, but my work suggests that the indices are tired at this point, and whether not there’s any selling pressure that comes to bear or it’s just a little bout of profit taking that presses the indices a little lower, I’m not sure at this point. I do know my work is telling me I shouldn’t be long here. That’s not to say we should be short. There have been no indications of trend breaks yet. So basically we’re in neutral mode. People who are long should use relatively tight stops.
Specifically, the March E-Mini S&P marginally broke 1105.50 this morning, went down to 1105 even, and managed to hold there. It’s now stuck in the middle of its range for the day roughly between 1109 and 1105. Right now it’s at 1107. There’s not a lot going on, although the underlying technicals suggest that if it tries to move higher, more than likely it will run out of gas on the way up and stall in the 1109-11 area. I don’t see much upside right from here.
How much downside is there? My suspicion is that later this afternoon the indices will come down and break 1105 and poke around in the 1102-1100 area. Now it’s only when you get down into 1100/1099 area where things could get tricky, because the 1100/1099 area represents the trendline from the most recent significant upside pivot. That would be the December 15 low at 1065.50. The December 15 low was the second low, remember, since the major pivot low on December 10 at 1051 ½, but that trendline runs through 1100, give or take a point, later today, and I suspect that a test of that low initially will survive.
That is to say the E-mini March S&P will hold 1100 and then try to rally from there, and we’ll have to see where that goes. Tomorrow is a full day of trading and Friday is a half day, but they naturally straddle New Years Day. So chances are there will be very sparse action.
The question is whether whoever is trading will be taking profits or adding to long positions. Right now my suspicion is there’ll be more pressure than strength and this is not the time to be long.
As for the QQQs, they actually made new post-March recovery highs this morning at 36.62, and are right now trading at 36.37. It looks to me without a doubt that on a micro trading basis that the Qs have peaked and are range trading at a relatively high level above 36, but likely will come down some more.
My suspicion is that if the Qs break 36 1/4, then they’ll go down to the 36.15-.12 area. That area is important because that’s where the indices took off yesterday afternoon and went straight up to 36.50. So keep your eye on 36.15-.12. If 36.12 breaks, I think you’ll find you’ll be back at 35.80 in a hurry, and then the situation would suggest that we have already started a pullback and corrective sequence that has a ways to go.
Until and unless 36 ¼ is broken, however, all bets are off on the downside, and we are merely just resting. Whether or not this turns out to be a turnaround Tuesday depends on whether that 36.15-.12 support area holds. If it does hold, then it’s conceivable we go back up to 36.70. But right now my overall work tells me the upside is limited and there is more risk to being long than anything else, even though we do not want to be short.
