Hi All! It’s great to be back if only for one issue this week. Next week, I’ll be back back to writing Monday to Friday.

Before I look at the ES, I want to thank all who dropped me a ‘get well note’. As soon as I can sit for more than 20 minutes at a time, I’ll reply to each of you individually.

Secondly, I want to thank Ana Wang for doing a sterling job while I was away. Just four more days,  Ana, and you’ll be off the hook. Thanks too to all who have assisted Ana with contributions.

Thirdly, I subscribe to Steve Briese’s ‘Commitment of Traders’ newsletter. There is a timely warning at

http://CommitmentsOfTraders.ORG/?p=37. I recommend you have a quick read of this post.

 

Let’s turn to the ES.

 

Friday’s price action is a warning to the Bears not to become complacent. Let’s see why.

 

The current trend is a sideways market. Figure 1 shows (all figures basis cash):

  1. The boundaries of congestion: 1440 to 1256

  2. The Value Area: 1399 to 1318

  3. The Primary Buy Zone: 1258 to 1281

  4. The Primary Sell Zone: 1440 to 1418

  5. Friday’s Bar Range of 17.45 was at the lower end of normal BUT its volume was at the higher end of normal. This is a Negative Development Buy Signal (see Nature of Trends).

Given Friday’s small range/large volume day, the market is warning of a possible rally. This is one side of the picture. On the flip side, notice that the average daily volume on the way down has been around 457,000. I’d have been more comfortable buying if this volume would have been less than that. In this congestion, volume of this magnitude has resulted in breach of the previous lows (on 01/23/08 and 03/17/08).

So how would I handle this situation? Recall that I trade the 18-d and it has signaled the probability of a down trend:

  • An Upthrust Change in Trend affirmed by the Whole Point Count (WPC) and other filters.

  • What is missing to confirm the down trend is a series of lower lows and lower highs.

So I would not initiate long positions until the downtrend signals are invalidated. But, if short, I would take profits on some of the positions. I’d also be on the lookout for how the market behaves on a breach of 1256. If the market shows signs of facilitating trade to the downside, I’d look for a place to initiate some new shorts.

 

06-30-2008-es-vol.jpg

FIGURE 1 S&P Cash

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