Friday, May 28, 2010

5/28 Daily Commentary


A late-breaking development has turned my head.  Spain's downgrade sparked a 5 down into the close with carryover into the evening session.  I want to get short here a little bit, but only on a rally.
Prices carried down to the 30-minute support which will only be broken on a decline through 1077:

That decline would bring it right down to it's critical support, which is the 60-minute.  That -1.65% brings us right down to our friend at 1056:

Notice that the decline only brought price slightly below the neckline.  In addition, 60-minute support is at 1080.  This support is the futures equivalent of the 5-minute, 380-unit M/A DJI cash market critical support.  The cash market just barely broke beyond the upper range (10,365 vs. 10,357 outer limit).  The futures decisively broke beyond it's support outer range at 1089. 
So, the battlelines are drawn.  A tiny short position is warranted due to the fact that the Spain downgrade should re-ignite contagion fears.  I am putting in an order to buy 1% SDS at 34.15.  Currently 34.35.
This is supported only by the I1.
On the other hand:
a)  Technical oversold condition has yet to work off
b)  The head-and-shoulders appears intact
c)  Futures have rallied beyond their critical resistance (60-minute) and are coming back down to that support
d)  I count wave 1 complete at the recent lows and a larger bounce is warranted
If prices break 1056 then I will be proven wrong about my wave count and adopt EWI's count.  I will also go short at that point.  Futures are at 1088.50 now.  What are the odds that futures will break 1056 by 8am Tuesday?  Unlikely, 33 points.  So I don't risk a large gap down beyond my action point.

The Weekly will post tomorrow evening assuming I work through the remaining software tasks.

Happy Holiday!

2 comments:

  1. Steve,
    As Jeff Cooper(familiar with his work?), fast moves come from failed setups. Do you remember a few months back there was the head and shoulders setup on all the major indices? Everyone and their favourite CNBC dog saw it and knew it. So what happened? A fakeout! It broke down a bit just like it should past the neckline and the reversed and zoomed off punishing everyone playing it. Would be interesting symmetry to have the inverse H&S that everyone seems to have been watching and waiting for...followed by a potential false breakout on Thursday and the real move on Friday. And to leave it poised at the neckline over a holiday weekend is cruelly ironic and very pregnant. Top Kill has now failed and you have I1 accelerating down.
    Cheers,
    Charles

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  2. Charles,
    Chart-reading is now universal and that plays in our favor because failures can create shock. The market, in my mind, must break support in the futures market. The 85-hour has been moving up and is now at 1088 with a break of it's support at 1070. Breaking this level will convince me that my count is wrong and EWI's is correct.

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