The Beginning of the End
by MarketWise University
Not “The beginning of the End” for bulls, most likely for bears. Looking at the E-mini S&P 500 Contract, the key level profiled was 1074 and this ES contract traded 1078 and then found support before falling back as the market closed. For Tuesday, a trader can now focus on the 1070 - 1072 level for the rest of the week and most likely this area will offer a solid buying opportunity for both a swing and day trader. There is solid Fibonacci, pivot, chart support, etc. at this area and traders should put a solid degree of emphasis on this area. We also talked about support in the QQQ’s at 34.40, and the daily low was 34.42. This simply means that our technical approach to market conditions works regardless of overseas news, inflationary or interest rate fears, etc.
Speaking of interest rate fears, if the market fell on Monday because of concern over the FOMC June Meeting, then what about the June Fed Funds on Friday pricing in an 88% chance of a rate hike? The market already knew about the potential hike in June; therefore, it! was more of a technical move and this is the market’s probe under the old 2004 lows and bear trap. For the ES, that level was 1084.75, and for the Dow it was 10,007. Dow under 10,000? Bulls should hope it hits every headline and newspaper on Tuesday, since it may help the ES quickly trade 1070 and give us a solid opportunity at going long. Will there be a catalyst to derail such bullishness? With the economic calendar light for Tuesday, all eyes will most likely be focused on overseas markets to see the reaction to the equity weakness in the states. It should be noted that the bond market really didn’t respond on Monday and the 4.7% level in the 10-year note dates back to 2002 and a level that was once support.
It should be noted that ‘selling into support’ is generally a dangerous strategy and there are most likely a hundred reasons on WHY the market fell. Market action represent mass psychology, which is extremely emotional and this continual flaw by the masses has most traders selling and buying at exactly the wrong time. 1070 in the ES seems like the worst time to start shorting, or even adding to a position. We could be singing a completely different tune in just a matter of days, and that change of sentiment is critical for any trader to have. The 157 level in the HUI would be analogous to the ES at ! 1070. What ‘rally’ are we looking for? For this week the level will be 1106. 36-points is fine for any trader, and at 1106 we will definitely not be as bullish as currently.
For securities that are well below old 2004 lows, a rally in the overall markets could bring these securities back to the old lows before falling again. Just something to think about when assessing risk/reward on securities not covered in this letter. Playing the devil’s advocate, the weakness in the S&P Banking Index (BIX) is worrisome and the recent fall in the Pharmaceutical Index (DRG) may also be telling that traders outside! the bond market are concerned about a hike in interest rates. What about the potential of other sectors getting hit while the S&P 500 remains relatively strong? Well, looking at the Dow, there is solid support below at 9935 and this should line up roughly with the ES in the 1070 area. The interesting note lays in the QQQ’s, where support below 34.40 is at 33.80 and then 32.88. This 32.88 level is NOT close to the ES at 1070, so going forward a trader should watch the QQQ’s as the leader in price action. One idea is to bid for the QQQ’s at the 34.35 level with a 0.25 cent stop and let’s not put in an objective just yet. Trade Wise. &n bsp;
AI
