Long at 1349.5

I am entering before the retail sales report because I expect a strong number.

ACH on Feb14: Correction over?

3 hour ES chart

The market has already corrected almost 20 points on the daily chart and the short term (chart above) looks bullish with a cup & handle forming (blue) and a break out of a triangle(red). So here are my hypotheses:

H1 - the correction is over and the market has started rising again;
H2 - a bigger correction has just started and a top is forming around these levels.


Evidence:


E1 - the 5 d ema of the put/call ratio is suggesting the market is/was oversold;
E2- the NYHL (52 Week New Highs - Lows) has already retraced to levels that market higher lows in past uptrends;
E3 - the short term market action is bullish with a break out of a triangle taking place;
E4 - the market has risen a lot on the weekly chart and it could at least consolidate for a longer time.


Matrix:

	E1	E2	E3	E4	Total negations
H1	+	+	+	-0.5	-0.5
H2	-0.5	-0.5	-1	+	-2

Conclusion:


H1 wins. It is important to note that mainly the shorter term action is tilting the balance towards this hypothesis. Thus, a trade on the long side will not be justified if the short term weakens (for example, the break-out attempt fails).

Chinese PMI - Make or Brake

The Chinese PMI has turned upwards recently but another slowdown from these levels cannot be excluded. Thus, the February report (released at the end of the month) will be decisive.My guess is that the index will break upwards into faster expansion territory.

Sold at 1341.5

I missed the best exit as I was expecting a move above 1350 so I had to sell on weakness. I do not like this kind of execution but sometimes it is better than waiting too much.

I sold the rest of my long I had accumulated since the beginning of January. I last updated on this trade here

ACH on Feb08: Take the money and run?

Weekly chart of the March ES contract

The March ES contract is up against the 2011 highs, the weekly IT upleg is up ~ 18% and the rise on the daily chart since the last correction is already greater than 50 points. What to do? Take profits here and wait for a correction of at least 20 points to reenter, or just hold longs because the market will only consolidate in a range of about 10 points?


Hypotheses:


H1 - The market will correct at least 20 points from somewhere around these levels;
H2 - The market will consolidate in a ~10 point range before moving higher.



Evidence:


E1 - NYHL (52 week NYSE New Highs - Lows) has spiked to +400 a few days ago and has been weak since then - a typical behavior before daily pullbacks;
E2 - The weekly bull leg is already 18% long and against strong resistance, similar to November 2010;
E3 - The market action resembles acceleration on the daily chart before a bigger correction, similar to Jan 14-20, 2011 or May 1-7, 2009;
E4 - The Fed has just become more accomodative and the latest employment report is consistent with economic strength so the market may just surge higher.



Matrix:

	E1	E2	E3	E4	Total negations
H1	+	+	+	-0.5	-0.5
H2	-0.5	-0.5	-0.5	+	-1.5

Conclusion:


H1 wins. I will go with the scenario of a correction of at least 20 points from here. I will add to this analysis as more evidence will become available during the next days. Until then, I am waiting for an opportunity to take profits on the remainder of my long position.

ACH on Feb06: Up from 1330?

The market has dropped 12 points near the ES 1330 daily support after strength into the end of last week and a good NFP report. Will this drop get longer, say 20 points, or will the market start rising back to 1340?


Hypotheses:


H1 - The market continues its drop, clearly breaking below 1330;
H2 - The 1330 ES daily support holds and the market starts rising again, reaching 1340.



Evidence: 


E1 - Short term TRIN stayed more than 1 day below 1.0 recently, before corrections on the daily chart (see chart below);
E2 - The first pull-back into daily support will be bought by those that liked the strong NFP number;
E3 - The market action may, by and large, resemble what happened after the Jan03, 2011 or Mar23, 2009 moves;
E4 - Uncertainty about the situation in Greece resurfaced;
E5 - Strong up moves are usually followed by smaller rallies during the next days.





Matrix:

	E1	E2	E3	E4	E5	Total negations
H1	-0.5	-0.5	-0.5	+	-1	-2.5
H2	+	+	+	-0.5	+	-0.5

Conclusion:

H2 is the winner. The market has good chances of reaching 1340 before decisively falling below 1330, although a dip to 1327 cannot be ruled out. Thus, we should see strength today, a close near the 1330 level greatly increasing the odds of a bigger correction.

Chart:

Sold at 1337.5

Sold the add I got at 1309 and part of my previous long position. The ES has strong weekly resistance above 1340 and I expect some correction to start even today. Many times, when the NFP report is too good and the gap up is too large, the market falls for the rest of the day.