Tradestalker’s R.B.I Update
Posted in Futures, Tradestalker's R.B.I Update, commodities, market recommendations, r.b.i, tradestalker, trading analysis on February 27th, 2009 by Mike Reed – Comments Off
2/26/2009
The market opened higher on Thursday, but the strength was sold and the market dropped for about 20 minutes before turning back up. The move took the ES to the 779.00-779.50 resistance, and the ES backed off from 779.00. After the dip, the ES popped up to 778.00 and then turned back down.
That triggered another 1-2-3 top pattern and the ES dropped to the 760.50-760.00 support zone. Buying came in, but the ES fizzled just under the updated 773 resistance (and at the 60ema on the 5 minute chart) and a drop to the 752.00-751.25 zone was underway. The ES reached 750.25 and then reversed, but the bounce fizzled at 758.50 (and the 20ema) and the market dropped back to its lows at the close.
The complacency at these levels is hard to believe. The Vix dropped 10% under its 10 day average close intraday, and still closed down while the market was down pretty hard. It gave a sell signal on Thursday. The Put/Call ratio isn’t sky high either, like it has been at past good lows.
At the moment, it is back to range-bound trading. The SP500 has been in a range for 5 days now, with 780.12 being the top side and 742.37 being the bottom side. The top of the range was rejected the past 2 days, as the bounces refuse to stick. A break to the downside will likely stick, given the lack of fear in the air, and if that happens then we could see the ES drop under 700 for the first time in over a decade. A drop towards the 680 level is possible if the 5 day range is broken on a closing basis. That would shake up the complacent group of options traders.
We had a drop of 600+ points on the Dow on February 27th a few years ago. Don’t count on that, but it does look like the market has more to go on the downside. It will take a break and hold over the 758.00-758.50 area on the ES (or the 60 period ema on the 5 minute chart) to put a dent in the downside momentum, and the market is a short under the initial resistance areas. If there is a test of the weekly low at the 739.75-739.00 zone on the ES, and it is not quickly reversed, then the bottom of the range is broken and the downside could pick up steam.
On Friday, look for early strength to be sold as soon as the upside momentum fizzles. If that plays out, and the ES breaks and holds under the 750 level, it could be worth holding on to with a trailing stop. If the bottom of the range, and last year’s low, is not held on the SP500 cash and futures, then it could be a bad Friday for those long.
However, if the ES drops towards the 740-739 area and reverses with some gusto, then buying pullbacks will be in order. Just be careful with the long side, as the market has a strong trend and momentum on the downside.
Good Trading,
Mike Reed
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