Morning Es Trading

Monday's Market Review

Every day we're tasked with identifying short-term trading opportunities, but that job is made significantly more difficult when the range we're given to work with is a mere 6.5 handles on the E-mini S&P 500 futures. Unfortunately, such narrow and directionless trading may remain an unpleasant reality until we're provided with a new catalyst in the form of clarity regarding the "fiscal cliff," or a fresh batch of economic data that signals either improvement or deterioration at an elevated rate. As for our next most likely catalyst, all eyes are on Wednesday's announcement from the Federal Open Market Committee and Fed Chairman Bernanke's press conference.

Hopefully everyone had a chance to read through Monday's article, which details my current outlook across the various equity futures contracts. For those taking notes, absolutely nothing transpired during Monday's session to alter those views.

E-Mini S&P 500 -- Five-Minute Chart

Source: eSignal

View Chart »View in New Window »

Turning our attention to Monday's regular-session Es auction, the only worthwhile development of note was the obvious lack of demand above 1418.5. Now, before this turns you too bearish, it's only fair to point out that sellers were nowhere to be found as the contract traded back down beneath 1418.5.

"Choppy" and "directionless" are the two best words to describe Monday's trading -- and, as our trading range contracts further still, I suspect intraday volume will continue to decline. For those frustrated by the recent trading, my advice is is this: Step aside and wait for the contract to close above 1423.5, if not 1430.25/1431.25 -- or back beneath 1410, if not 1395. There's no reason to duke it out within this narrow range. Go skiing, sit on the beach or finish your Christmas shopping, and wait for a more motivated participant to tip his hand before you put your own capital at risk.

Tuesday's Es Trade

The bulls appear to be entering Tuesday's session in a very favorable position, but that doesn't mean buyers can throw caution to the wind. Ordinarily I would point to the fact that this is day one of a two-day FOMC meeting, and such days are generally pretty quiet. But, given the premarket strength, perhaps a more active session is in our future. (No, I am not getting my hopes up.) The bottom line is this: The direction of Tuesday's auction is likely to be determined by how much demand resides above 1423.5 on the Es.

E-Mini S&P 500 -- 10-Minute Chart

Source: eSignal

View Chart »View in New Window »

Today's primary area of interest is 1423.50. Should demand follow the contract above that level, I believe the path of least of resistance would involve a probe of 1427.25, and perhaps as high as the 1430.25-to-1431.25 area. However, such a probe might be exactly what we need to see in order to attract a more aggressive seller.

Just so there is no misunderstanding, I do believe a sustained trade above 1423.5 favors buyers. But it is also my view that, if an aggressive seller is lurking, he is likely to step forward and put buyers to the test near 1427 or 1430.25/1431.25. Should we see a probe of one (or both) of the aforementioned resistance levels above 1423.5 -- and should the S&P then close back beneath our primary are of interest -- the risks will most assuredly have risen that a near-term high had been established.

Current conversion formula: Es (December contract) value X .100489 = SPY Value

1438.25 = 144.53*

1431.25/1430.50 = 143.82/143.75*

1427.25 = 143.42**

1423.50 = 143.05***

1417.50 = 142.44**

1410.75 = 141.76*

1401.50 - 1402.25 = 140.84 - 140.91*

1399.25 = 140.61**

1394.25 - 1395.50 = 140.11 - 140.23***

At the time of publication, Byrne had no positions in the securities mentioned.