Keep On Trying ‘Till We Reach the Higher Ground

I was off the trading desk and on a holiday this last week, which was very relaxing. Now I have all kinds of catch-up work to do, so going to make this a brief(ish) one today. Go ahead and play the Red Hot Chili Peppers cover or the Stevie Wonder original while you read and the post title will make all the more sense. Plus it’s a great song.

So here we go…

WTI Crude Oil

This last week was the monthly contract roll, which is usually something of a thrill ride and this week had its fair share of hurking and jerking over a $5 range. Looking at the weekly chart I think you have to seriously consider the possibility that WTI is trying in earnest to find an intermediate term bottom here. Not that it always matters for your intraday tactics, but you have to be aware of the higher-time frame, particularly at the recent range edges. To fade or not to fade, that is always the question.

CL-Weekly

In reality, there are a couple of legitimate ways to see the chart above. First and my favorite is that we’re bottom fishing in the low 50s now. We have 3 consecutive weeks of higher POCs, with this week’s was right around 53.50. This is pretty significant… we just haven’t seen anything like this in quite some while. A base for some further upside has been established, but as always the question is whether we can keep it going given the still-massive oversupply conditions we’re facing. Of course, we’re coming into the summer driving season in North America, so seasonality should start to become something of a factor. Assuming of course the Northeast ever manages to dig out and thaw out.

The other legit way to view the weekly price action above is to see it as just a dead cat bounce and we’re headed for another leg lower, likely back to test the January lows in the 43.50s. Here and now we’re at a pretty critical technical juncture in the WTI market in my view. So… dead cat bounce or bottom found? At this point I’m favoring the “bottom fishing” view simply because it’s clear that buyers are seeing value in this range of prices. At the end of the day, it’s all about value.

So looking at the week, I think Thursday and Friday are the most interesting days to examine:

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CL-TPO2

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CL-TPO

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Merged, Thursday and Friday (left) provide a somewhat balanced profile. Apart, right, we have a reasonably balanced Thursday and a very unbalanced Friday with both a very, very, poor high and low. However, we did achieve a higher value area. This is a tell for Monday, I’m thinking, and again the merged Thursday/Friday auction is a little out of balance in a bullish way. Completing/balancing this late-week action would mean a test of a well-established area of balance which has a bottom in the 52.90s. If the bulls are able to crack 53.00 early in the week it would not be unreasonable at all to expect a rapid test of the weekly high around 55. Above that 53 area and there may be some significant buys stops for the popping and given the risk on undercurrent of last week, as nuts as it may sound, a test of the 60 handle could be in the cards this week or next. It may not stick, but a test like this soon is not out of the question given the recent ranges. Looking the other way, should we see selling with buyers failing to defend the 49.50s I’d expect higher time frame support in the 46s. Again this expectations is based on the evidence – for the last several weeks buyers are voting on the value at these prices with their wallets. Should buyers fail to materialize there, I’ll almost certainly be targeting the lows in the 43s for a second test and potentially a double bottom. Through that and… well… let’s cross that bridge when it’s in front of us.

S & P 500

Without a doubt, the charts are shouting risk on in the senior US equity indexes. In the ES we built a pretty convincing area of balance/acceptance around 2094 and the shot through the 2100 ceiling with a mighty crack:

ES-VP

ES-TPO

This push left an area of singles (highlighted above) behind, and given the time and volume in the early week balance, in my view it’s most constructive the see the area above the singles as a new, incomplete auction. I’m going with that thesis then unless we see something contradictory from Asia and the EU overnight tonight. Save that, I’m expecting to see this nascent auction to provide us with a balanced target test of the 2015 area Monday. Of course, you can’t discount the “Greek factor” in Friday’s price action, and as is so often the case, the ES may want to re-test area where price took off very, very soon. In this particular case, I would expect a check and repair of the singles (shown above) around 2100 again during regular trading hours on Monday and even down to the balance area POC around the 94-95 handle. Should buyers fail to provide support for this region it’s not unreasonable in my view to expect a quick trip to the Friday lows around 2082. The bottom line is that Friday’s profile is an ugly, skinny trend auction example and it needs some fix-up. If we test higher without addressing the structural issues in Friday’s auction, I’ll likely view this is a head fake, particularly if the overall internals are showing anything but continued exuberance.  The reality is that this structure will be repaired, it always is, it’s just a matter of when. So again, let’s take it one step at a time.

Trade ’em well this week…

 

Just Dropped In to See What Condition Our Condition is In

Why yes, the title of this post does refer to the surreal dream sequence in The Big Lebowski. Sort of fits where we’re at in the markets at the moment, doesn’t it?

 

 

The Equity Indices

The big volatility continued, of course, lubricated by global monetary liquidity on the one surface and the picking of multi-billion Euro nits between Germany, Greece and the ECB over Greece’s fiscal woes on the other. All this left many a trader confused and frustrated when sell-side programs took the opportunity to whollop the indexes not once but twice this week, seemingly out of nowhere. These hits came just we were getting comfortable with the idea that no, the SPX’s 6th test of the 150d EMA was not, in fact, indicative of weakness in the equities market and that the bull party may be winding down.

SPXMA

 

It was just the opposite. Turns out the glass was half full and your gracious host was standing over your shoulder, ready to top it off before it even left your lips.

Of course I’m only joking. Fact is that as a short term trader, especially in the futures markets where up is just as good as down, you survive and thrive via adroit use of mind and DOM. Still, I think it’s useful to take stock (get it?) in where we’ve been in order to help visualize where we may be headed. And to help make mental room for possible strikes and gutter balls, maybe even all at once in the same frame.

So let’s look at how we did, starting with the US large caps and working our way down.

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SPX

S&P 500

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SPMidcap

S&P Midcap 400

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Russell2k

Russel 2000 Small Cap

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Nasdaq

Nasdaq 100

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The thing that I think has to jump right off the screen at you, 3D movie style, is that both the small caps and midcaps were able to at least take a peek above the year to date resistance. The midcaps not only peeked, they were able to bob up out of the deep water and spend a session or so with a dry head. Of everything I see on my charts this weekend, this has to be the strongest argument underpinning the expectation that the SPOOs and NQs have potential to continue higher. On the other side, the fact that none of the indexes were able to close above this same resistance is compelling fodder for a reversal thesis.

So what will it be this week in the SPX? Strike, spare or gutter ball?

At this point, factoring out force majeure, as I’ve been saying for weeks, I believe that the bulls must regain at least intraday acceptance in the 2060s range, and secure that acceptance by pulling the VPOC back up from the 2026 area. This is what’s needed in my view to sufficiently buttress market structure for new all time-highs. Believe it or not, the forceful sell-off on Friday may be just the thing to set that up. Bulls can only build balance (aka fair price acceptance) in the 60s, by buying over some period of time in the 60s area. You can’t do it from higher, like at the Friday highs. Fact is that Friday’s 2053.75 close puts that objective in easy, casual reach, even with a hangover. ;-}

ES

Should the bulls fail to do this, given the volatility we’ve seen, I’d expect us to revisit the 2020s area and possibly even the 1970s area from a week ago. Maybe lower. But again, I think in this environment where we’re on and off the brink every other day, it makes sense to not get ahead of ourselves. All the important levels in the box above are well-known – we’ve tested many of them from both sides, dozens of times in some cases. The only need I think this week is to be ready for responsive or initiative other time frame (OTF) players to step in. Overall, the bulls are in control. Most all the shorts above Friday’s close were likely squeezed out the last several weeks. So bears are the ones who would have to dig in anew. They are side with something to prove, methinks.

 

WTI Crude – The Archetypal Wild Child

Only lightly trading crude oil given volatility in the SPX (my main squeeze) these days, but it’s definitely worth keeping an eye on. On the weekly time frame we’ve finally established a higher POC in the low 51s after endless weeks of driving lower. The profile shows the market out of balance, which means in order to bring itself back into balance and move on we’d need to see a poke up into the 55 area. The fact that we spent Friday at the top of the POC balance area, is constructive for higher prices.

CL

Whether we build acceptance higher is another question, one I’m doubtful of in the short term given the massive oversupply condition we now have. But looking just at the charts this is the most logical course for the auction in my view. I’ll definitely be keeping an eye out for long swing opportunities up into this region this week, via CL as well as the UWTI ETF. Still not much interest in energy sector equity names for the long term. Overall my view is that we’re going to keep bouncing along the 50s and 40s for a time to come. The fundamentals don’t support a v-bounce, at least not yet.

As usual, I’ll post specific levels I’m watching on Twitter as the week unfolds. Trade ’em well, amigos…