Furthermore.....

Expecting a slow day (consolidation) today but risk reward will favor shorts I think given that we are now short term overbought and buying power looks exhausted after yesterdays extremely positive tick readings. Also good odds for fading any gap given we did not fill yesterday. To summarise a good sized pr-market up gap looks like a good trade to me. After that I'd be inclined to fade the range in the first hour........

Going to test 1250 methinks

We have finally cleared 1200 and it now appears that we are very likely to test the 1250 area on the ES corresponding to the backside of the long term trendline and the 200 day MA. From looking at the various asset classes it would now appear that some sort of stimulus action is being priced into the Sept FOMC meeting (as risk appetite is back) and thus if you were short, you just don't want to hold going into it. Could be another buy the rumour sell the fact play coming up. The announcement will occur on the 22nd of September for those wondering. Over in Europe things have quietened down and there has been a rally in the credit markets so the fear has definitely subsided.

Under the hood, market internals were very strong yesterday with cumulative ticks finishing at +140,000, however volume was extremely low when compared to the 30 day median (running about 35% lower).

Pinning their hopes on the Fed?

Even though the major indices finished flat yesterday, the price action and cumulative ticks indicated bearish sentiment still prevails. After a monster gap up, stocks were sold into the strength with the gap eventually filling. Cumulative ticks trended lower the whole day and finished at a very bearish -90,000. There has been lots of news about investors buying this market because the Fed will come and save the day with QE3. I would think that the probability of such an event is low as the Fed's mandate is not to support equity prices but economic growth. From a political standpoint, there doesn't seem to be much support either for another round of debasing the US currency. All in all, if traders were that positive about more QE3 then the shorts would have covered and this market would be bid much higher. I can't help but think that if we don't see some kind of surprise supportive announcement from the Fed (other than a repeat of it's last statement) then markets could head lower. Certainly the longer we hang around at these price levels, the higher the chance we break through them.

Another chance??

Another chance to get long on a retest of 1100 is coming up I think. Failure to hold 1100 or slightly below and then we start looking at 1019 as next support.

Failure again above 1200 is not good for the bulls

Futures trying to hold 1177 currently. Failure to hold the 1180 and we should trade back down to 1147.

Next target 1220

1220 looks like much stronger resistance to me as it corresponds to trendline resistance and fibbonacci level. I was going to comment that the ability to hold the 1180 level yesterday was quite bullish and it would appear that the shorts at 1200 are now covering today as we have cleared that hurdle after the 3rd go.

First target hit at ES 1200

Interesting juncture here. The bounce has hit my first target of the 1200 area and we should expect some resistance here. Odds are relatively good for fading the current down gaps (especially as yesterday's gaps did not fill) as long as we hold yesterday's open.

Looks like the bottom is in......

Waiting for a daily close higher now and we should head towards 1200-1220 as the first target with the second at 1240-1250. Don't think the FOMC statement does all that much other than tell us all what we were thinking anyways ie that very low interest rates are going to be here for a while". It will be telling to see how strong the bounce is as if it fails within a few days then a retest of the lows would be imminent.

Forced liquidation time......

Doesn't matter that we are oversold. We need to see all the buyers washed out here before even attempting to make a bottom. Going to get a bit more ugly before it gets better I think.

Was that the bottom??

In a market without significant fundamental news driving it, then I would say from a technical standpoint, that the low of 1163 in the ES yesterday has a high chance of marking an intermediate term bottom. However, with all this sovereign debt news (ie rumour that ECB was buying Spanish and Italian bonds that supposedly caused the reversal yesterday) flying around and credit markets in a spin, then it's really hard to say as the S&P decision to downgrade the US credit rating may have an impact on Monday morning. At the moment all bets are off for longer term trades and the markets are really a day by day proposition. I would imagine that given the precipitous sell off in the last week, that margin calls are being felt and we are already in the stage where any multi-day bounces will be met with more selling. So for now I'd stick to that MO until the market character changes (VIX below 25 would be an indication of that).

Total unwinding of leverage here......

Now that the Central Bank and government punchbowl is being taken away (thank you Mr Trichet for making that clear), we are seeing a total unwinding of leverage here. Watching the ES futures price action and it's clear that the selling is relentless. So it's true then, you can't spend your way out of debt!? The Austrians were right after all......

Where to now???

I'd be on the lookout for another final capitulation type move, followed by a vicious bounce similar to what occurred on Wednesday. I think we are not far off from a bottom here but as always I would wait for a confirmation ie follow through day before going long. I expect the bounce to be just as wicked as the sell off and we should test 1250 on the ES before sellers again come in and we retest the lows. From there we either double bottom or all hell breaks loose. I'm hoping for the former as I'd hate to see people losing their jobs and livelihoods etc etc. A bad NFP this morning and we may get that capitulation.

Pretty bearish price action yesterday

Pretty bearish price action yesterday as the monster up gaps filled and then some. Economic numbers continue to surprise to the downside in a sign that things are slowing down again.

Technically we are testing the 200 day moving average again and also the monthly trendline from the March 2009 lows. I would bet that we will bounce somewhat for a few days off these levels (cumulative ticks did come back and finish positive in the second part of yesterday's session) but overall I'm not that optimistic about the longer term, although a fair few of my quant subscriptions are still presenting research that favours the long side in the intermediate term. 

Unemployment reports could be quite a trigger coming up this Friday.