Monday's Market Review
I trust everyone is already aware of the fact that Monday's trading volumes were abysmal. However, rather than complain about the lack of participation, let's consider what the market's current structure is telling us.
E-Mini S&P 500 -- 15-Minute Volume
Source: eSignal
It's worth recognizing that Monday's regular session opened within Friday's value area on the E-mini S&P 500. As you'll recall from Monday's note, a market that opens within the prior session's value area is providing us with a valuable clue. It may appear to be a boring and benign open, but it is actually alerting us that we're likely to encounter responsive behavior above and beneath the prior session's value areas. Put another way, with no major economic, political or company specific news to price in, the odds favor responsive rather than initiative behavior.
The (upside) bluntness of the market's current profile is also noteworthy. Blunt profiles are rarely complete and, as a result, I suspect we have further to trade on the upside. Remember, auctions generally don't end until some degree of excess has been triggered. As much as tortured shorts won't want to hear this, we've simply not triggered any meaningful degree of excess.
Tuesday's Es Trade
Tuesday's economic events calendar is incredibly quiet. In fact, the headline event of the day would have to be the 9:30 a.m. EDT press breakfast, to be hosted by Chicago Federal Reserve Bank President Charles Evans. As a reminder, Evans is every bit as dovish as Dallas Fed President Richard Fisher is hawkish. Put another way, it wouldn't be a stretch to anticipate that Evans will speak favorably of the Federal Reserve's current quantative-easing program.
E-Mini S&P 500 -- 15-Minute Volume
Source: eSignal
Tuesday's primary area of interest is expected to be 1700. Keeping in mind that aggressive buyers would rather not see volume build beneath 1701.25, I don't believe the bulls are in danger of any sort of rollover in price as long as demand remains intact near the big figure.
As long as the market's intermittent dips toward 1700 continue to be met with sufficient demand, the Es' most likely direction will remain higher. Aggressive buyers, especially those who have been buying over the past three sessions, are primarily concerned with seeing value migrate above 1704.50. However, as value shifts above that level, buyers would not want to see the Es crack, and sustain a trade back beneath 1702.50 to 1703.25. Any such breakdown, after a value shift above 1704.50, could quickly lead to a short-term long liquidation.
I can envision two distinct short setups, based on how the market has unfolded over the past two sessions. The first, as outline above, would require value to shift above 1704.50, but then fail to extend higher. This sort of pattern could easily result in a long liquidation. Any such liquidation would likely gather steam beneath 1700, and immediately begin targeting 1692.
The second setup would likely be slower to develop, and a bit more difficult to spot. Should the Es lose support near 1700, I'd expect two-way churning to develop between it and 1696. Now, while I would expect to see an eventual crack of 1696, I doubt it would be as quick and clean as a long liquidation. Similar to the liquidation break described above, a sustained break of 1696 would have sellers targeting 1692 and 1687/1687.75.
Suffice it to say that the recent volatility doesn't give me much confidence in seeing 1687 in the near term. However, should such a selloff transpire, I'd expect an aggressive buyer to be lurking in and around 1687.
Current conversion formula: Es (September 2013 contract) value X .100255 = SPY Value
1704.50 = 170.88*
1700 = 170.43**
1696 = 170.03*
1692 = 169.63*
1687.75 = 169.20**
1681 = 168.53*
1678 = 168.23*
1674.75/1675.50 = 167.90/167.98***
At the time of publication the author held no position in the stocks mentioned.