A Few 30 Minutes Charts Worth Noting

Brad Sullivan

These charts were posted on Thursday March 6, 2008 at 1215 CST in our SuperPlatinum Virtual Trading Room.

Equity Index Update

Brad Sullivan

This article and accompanying charts were posted on Thursday March 6, 2008 at 0830 CST in our SuperPlatinum Virtual Trading Room.

The index markets appear to be set for another volatile session as news out of MER, FNM and TMA have knocked the markets substantially from overnight highs. On the positive side of the ledger, WMT boosted their dividend and announced slightly better than anticipated monthly sales figures. Currently, the SPH is trading at 1328.50, -7.00 on the session and in the heart of yesterday’s final hour choppy trading zone. Considering that the Employment reading will be tomorrow morning, one has to wonder if the market will have enough “juice” to move substantially in either direction. However, if the news cycle continues to deteriorate and the dollar freefalls, anything can happen.

I have included several charts today…among them is a chart with daily closes in the SP Cash. It is worth noting that we are, for all intents and purposes, locked in a range between the January closing low of 1310.50 and the Feb High of 1392. However, the substantial portion of the settlements in the index has occurred between 1360 and 1335. The situation now is this…is we building a base from which to move higher or a topping base from which to move lower?

Equity Index Update (Special Edition)

Brad Sullivan

Editor's Note: Brad Sullivan's Morning Commentary is usually posted in our SuperPlatinum Virtual Trading Room around 0845 CST.


The index markets are called to open higher as the market attempts to follow through on yesterday’s strong reversal. The SPH is trading at 1366, + 7.00 on the session. The real strength this morning lies in the NQH futures which are trading higher by +1% at 1807. Strength in the technology sector is being led by RIMM (Research In Motion) which updated guidance this morning and is trading higher by +12pts to 109.50. In addition, CSCO (Cisco) was upgraded in a research note and is higher by +2% in the premarket.

Today’s session should hinge on whether or not buyers step up at higher levels. Yesterday’s action was quite constructive for the buyside as sellers could not generate any selling below key support zones. Will the buyers step up today? Certainly the table is set.

I have enclosed 3 charts showing that show some interesting situations in the near term.

Equity Index Update (Special Edition)

Brad Sullivan

Editor's Note: Brad Sullivan's Morning Commentary is usually posted in our SuperPlatinum Virtual Trading Room around 0845 CST.

The index markets are called to open sharply lower on the heels of aggressive selling in the far east (Nikkei and Hang Seng lower by 2 and 3% respectively) and economic data that shows some signs of inflation here at home. The SPH is trading at 1336.50, lower by -19.00 on the session. Some of this headline decline is due to the premium settlement in the futures trade yesterday. After the cash close, HPQ reported better than anticipated earnings and the SPH rallied to settle +5.50 above fair value.

Today’s session should be dominated by the key support zone built up in the SPH from 1340 to 1330. If the index were to break below this zone on a 30 minute close it is a negative that should produce a test of the 1315 zone (chart enclosed). If the market holds this zone, there is potential for short covering towards the 1350 level; however given the makeup of our current environment (4 % range) a bounce like that should be sold.

External factors in today’s session will be the commodity market, specifically the energy complex. Yesterday, front month Crude Oil traded over $100 per barrel and seemed to trigger selling in the equity indices. Clearly any sustained trade above par is not helpful to the equity market and could be the trigger for a larger move. Conversely if Crude were to come off towards 98 it may be supportive in the shortest of time frames for equity traders.

I have enclosed 3 charts today…the first being a all session SP futures chart since Feb 1st on a 30 m inute basis. The second being a daily NDX 100 chart from the 2006 bottom and last a comparison chart of GS and the SPX.

Equity Index Update

Brad Sullivan

The index markets suffered through a massive liquidation in the final 90 minutes of trading. At 1:30cst yesterday the SPH contract was trading at a recent high of 1432.50, that bid was quickly erased as heavy selling hit the market below 1425 and 1415…eventually leading to the ultimate puke that pushed the contract as low as 1393 after the cash close. Clearly the market is in a state of turmoil and during these times prices get out of line due to “need” based selling. The question, of course, is whether or not we are at that juncture…lets take a look at the past down moves in 2007:

As one can discern, the market has been awfully difficult for those that are purely long over this period. However, given the extremes in price movement one should be prepared for buying opportunities, even in the shortest of durations (from a time frame perspective). We have entered a spot that markets do not see that often and one thing that I have learned throughout these moves is that the market tends to go further than one thinks possible. In other words, yesterday may not have been the washout.

From the intraday perspective…the obvious target for the SP is the cash closing low from the spring of ’06 (1377.95). That level is certainly not to be construed as a line in the sand. Rather, just a benchmark about where the current market is trading. Keep a close eye on bounces, particularly in the morning that lose steam in the afternoon. Resistance lies between 1407.50 and 1414 in the SPH. Any settlement above 1423 is a positive and should lead to a position long.

Equity Index Update (Special Edition)

Brad Sullivan

Monday December 17, 2007

The index markets were weighed down on Friday with the release of a stronger than anticipated CPI reading. Volume flows were on the lighter side as interest in the trade was pretty muted…however, the SPZ did end the session lower by -1.5% and settled at session lows of 1478.50. This morning, the index is called to open lower at 1473.50 (-5.50) on the session. This marks a new low for the month of December and it is a month that can only be described as schizophrenic thus far.

Consider that this month has a significant historical upside bias and after early selling, the indices responded with a tremendous upside push. That push higher was unwound last Tuesday as the FOMC failed (in the market’s eyes) to respond appropriately to the current credit issues in the global market…throw in a little inflation fear and things are not looking as good as the buy side would have hoped.

Along these lines let us examine the movement post FOMC announcement and the subsequent joint injection of reserves by the chorus of global reserve banks. It is worth noting that in absolute value, it was the greatest move in the history of the SP futures from 1:30cst to the close and close to the 8:30 open on Wednesday…85 total SP POINTS. Since that time the indices have moved lower in a grinding fashion with each bounce failing to attract buyers at higher levels. With the SP now trading at -1.5% for the month and closing about the same distance below its 200 day MA (-1.5%) one has to wonder if the die has been cast and lower prices are ahead.

One thing that appears to be in store is a dialing down of intraday volatility. While the absolute moves have been large, the session range continues to tighten and for day traders that means to tread with caution. It is certainly worth pointing out that in the last 12 years there have only been 7 sessions with a high to low range of more than 45 SP points. The range on Dec. 11 was 56 points and on Dec. 12 46 points. The last time it happened was Jan. 3, 2001 (surprise mid-day rate cut), where a 46 point range was preceded by an 81. Clearly there is some position movement and it appears that the group that has blinked first is the long side.

KEEP IN MIND THAT TODAY AT 9:00 WE WILL HAVE THE FIRST AUCTION OF THE NEW “SYSTEM” ANNOUNCED LAST WEDNESDAY...ALSO TOMORROW BRINGS EARNINGS FROM GS (GOLDMAN SACHS) AND THIS IS QUADRUPLE WITCHING EXPIRATION WEEK.



Editors' Note: Brad Sullivan's comments are posted each day near the Cash Open in our SuperPlatinum Virtual Trading Room.

Equity Index Update (Special Edition)

Brad Sullivan

The index markets suffered through a sharp decline in the afternoon trade after a JP Morgan analyst cut revenue estimates for the Chinese Internet company BIDU (Baidu.com). The stock plunged from 358 per share to 303. Other staples of the momentum side also slid as GOOG dropped from a new all-time high of 641 to 622 on the close…AAPL fell sharply as did DRYS. The NQ market participants were clearly caught off guard as the index cratered from 2210 to 2160 in 30 minutes of trading…the subsequent bounce proved short lived and another round of selling pushed the index to the session lows of 2146 a solid -2% drop for the afternoon from high to low.

The interesting aspect of the decline was the second wave of selling. It was during this wave that the broader market came along for the ride on the downside…GS gave back its entire session from Tuesday’s FOMC minutes rally and the stock settled at 229. The examples of this type of price action were found everywhere by the close and one has to wonder if a confluence of forces that have been the underpinning of this rally (global growth, commodity boom, no inflation…so on so on) is being rethought. Certainly, a one day reversal should not cause a top in this long running bull market…and for the bears hoping that we have finally turned the cards over to the “sell” side of the ledger I would advise caution. There needs to be more technical work done on the downside in order to generate a price ceiling of significance. In the short run, it would appear that a rally back to yesterday’s highs would be a stretch. So…where does that leave us?

From a day trading perspective, much of the move was accomplished (at least in terms of velocity and price discovery) in yesterday’s swoon. The SPZ went BELOW the September Employment Report session low (1558.25) and some mild sell stops pushed the index to session lows of 1556.25. However, this low was still HIGHER than the GAP left from that very Employment report (1552.25). The subsequent short covering bounce into the close pushed the index towards 1565 – that close is on slightly lower on the week and does not represent the low close of the week as that was accomplished on Monday at 1562.75. In fact, only the NQ and ER2 contracts closed at new weekly lows. Essentially, this boils down to patience and a little bit of reality. Yes the markets are overextended and the fact that a revenue downgrade of a Chinese Internet company could put so much pressure on the marketplace proves that point. However, to make the leap from the trade in BIDU to an overall slowing of the China Story may be a bit of a stretch. In my opinion, we witnessed a rare news event that led to a bit of a buyers strike. Whether or not that continues today will be fascinating, particularly as we head into earnings season. My advice is to lay low and look for a few opportunities, particularly early, for selling rallies. Psychologically the market took a hit and some of that should carry into today.

A note from Brad Sullivan

Dear Friends,

I would like to announce that earlier this month I accepted a trading position at a proprietary firm here in Chicago and will no longer be able to appear in the HA Virtual Trading Room for live commentary. From a subscriber point of view, this clearly comes out of left field, yet I felt this opportunity to be too good to pass up.

As a compromise, I will supply Hamzei Analytics with my morning commentary and two intraday updates to be posted in the SuperPlatinum Virtual Trading Room only. Feel free to continue emailing any questions or comments to brad@group6trading.com.

I have enjoyed our trading discussions online and believe that we have created a unique venture within our virtual trading room. While I may not be on the screen each day, you will have my market thoughts and feedback throughout the session, albeit in a different format.

Thanks for all the fun over the past several years,

Brad

Equity Index Update

Brad Sullivan

The index markets reversed overnight worries from a Chinese decline and pushed significantly higher. In fact, the SPX joined the All-Time High Club as the index finally pushed through the 1527ish previous high close registered in March of 2000. Now the index has the intraday highs of 1552 and change in its sights. Without question yesterday’s sharp move caught many traders flat-footed. Given the China news, and the fact that this time there was a catalyst for the decline (raising the stamp tax on stock transactions from 0.1 to 0.3%) it should have come as no surprise that the indices were not going back down the Feb. 27th path. However, to predict new highs across much of the board was not something many were thinking when the SPM was trading around 1516.

And there lies the proverbial rub of the index trade in our current climate. By most measures we are overvalued/stretched and should be looking for a moderate decline. However, the indices keep on chugging higher and for those fighting the tape it has been a painful experience both psychologically and financially. As I pointed out last week in a couple of comments, the indices were stretched on a variety of readings…normally this plays out 1 of 2 ways: either a sharp decline or a moderate decline followed by sideways action. Neither of these scenarios is playing out. The decline was shallow, but only a couple of sessions of range oriented action followed. This leaves me with a scenario that rarely comes into play and that is the blow-off rally. Simply put, the DJIA and SPX have POTENTIAL to stretch this rally significantly higher throughout the summer. There are now 3 options on the board and it should make for some very interesting trading over the next 6 to 8 weeks.

For today’s session here are the levels in SPM I am focusing on: The first area of resistance should be found between 1535.50 and 1537.50…above this look for a push towards 1541. I would be looking for the zone between 1540.50 and 1542.50 to establish a moderate short line. Above 1545 on a 30 minute close, the white flag is waived on this transaction.

On the downside, support should be found in our old resistance zone of the low 1530’s…essentially look for support between 1533.50 to 1531. If this zone fails to hold, look for selling to accelerate towards 1528. Support is found within the 1529 to 1527 zone and again from 1525 to 1524. Clearly any move towards this area would leave many scratching heads.

All told, with the month end and tomorrow’s employment report, I would asses the odds of a significant move higher or lower as remote. Keep it close to the vest, but be ready to play if something changes during the session.

Equity Index Update

Brad Sullivan

The index markets took a spill yesterday on heavy volume. The SPM opened in my support zone between 1524 and 1526, quickly finding a bid just before the release of New Home Sales which rose by a staggering +16% and well outside the highest end of expectations. Accordingly, players bid the indices in the wake of this number…however; the key resistance area in the low 1530’s put a ceiling on the session. Once the day trade longs were forced to liquidate the downside picked up some serious momentum and pushed through a variety of support zones established in the last two weeks of trading. Program trades were the flavor of the session as -1000 readings on the NYSE TICK were plentiful. When the session ended, with a minor bounce off the session lows, the SPM lost -13.50 for the session. However, measured from high to low on the session, the contract fell nearly -25.00.

This morning the indices are called to open higher as Europe remains moderately higher for its session. The SPM is trading at 1515.50, up 4.00 on the session and +5.20 above fair value readings. Keep a close eye on the 1515-1518.50 zone as the trade unwinds this morning. Early closing in the US debt markets should leave many traders heading out for the weekend after the first hour of trading. Accordingly, keep a close eye on some volatile trading during this period. In addition…if I hear one more pundit on CNBC talk about the bond market and the 10yr. yield approaching 5% being the reason for equities reversing course yesterday I may have to turn it off for good. During the past four years, yields have generally moved higher while equities have taken off to the upside. Now…if we were to push the 10yr to 5.25% in a velocity driven/inflation fighting trade – THEN I would say the yields are impacting equities. Until then, too many people looking for a reason that the indices broke -2% from All-Time highs.

Here are my levels for today’s session in the SPM contract: On the upside we are scheduled to open in the 1515 to 1518.50 zone…this zone is acting as resistance once again and only a 30 minute close ABOVE 1520 will change that picture. If we were to push above 1520 on a 30 minute basis I would not chase em up. Rather, the picture would become mixed for the rest of the session. Given the anti-upside momentum that I outlined yesterday, we could very well hit the 1524 to 1526 zone and fail there. In other words, rally selling remains the key in the short term.

Equity Index Update

Brad Sullivan
Thursday May 24, 2007

The SPX index failed to close above the All-Time High close yesterday, and for the third consecutive session this index could not generate any “follow” buying. Accordingly, late selling has hit the market each session, pushing the index below its ATH close from March of 2000. The question on everybody’s mind is pretty simple…are we beginning to move into a resistance area that will hold prices down for the next few weeks?

On any technical measurement, the indices are clearly overbought – IN THE SHORT TERM. Consider the performance of the major indices from their respective March trading lows (seems so long ago doesn’t it?) to their recent highs. The DJIA is up about +12.8%, the Midcap 400 is up 11.5%, the SPX is up 11.2%, the NDX is up 9.9% and the Russell 2000 is higher by +8.8%. All of this taking place in about 9 trading weeks. That is a tremendous rally in both net change and velocity (measured in time). The odds are favoring a pause/contraction/slowing of this move. However, let’s keep in mind that ODDS only tell part of the story and if this is a stealth/blow off move to the upside there is plenty of room left in higher price zones.

As for today’s trade, the housing reading at 9:00cst should add some intraday volatility and the Durable Goods reading was able to push the SPM from -2.50 at 1523 to the current +0.50 at 1526. In addition, all eyes remain squarely focused on the holiday coming up this weekend as well as any happenings in China, where it appears that Mr.Greenspan does not have the same pull as he did several years ago. His overtly bearish comments on the Chinese market produced a settlement of -0.5% in their session…not exactly the earth shaking response one would anticipate.

Here are my levels for the SPM today…We are called to open within my key support zone from 1524 to 1526, I anticipate this zone to be the transitional area for a red light/green light type of session. Above it, is green light (buying) and below it is red light (selling). Above this zone we should hit resistance between the 1528.50 and 1530 area, followed by 1532.50 to 1534. The levels above 1528.50 have been probed for 3 consecutive sessions with yesterday’s action creating a new contract high…however, the failure to close any of these 3 sessions in positive territory has to be considered a NEGATIVE. Whether or not strong selling appears at LOWER pricing zones remains to be found, however, what should be important from a trading perspective is the ability to sell this market in the lower 1530’s for a move lower by the close of trading. In other words, we are not finding a boat of sellers at 1520 (assuming we get there) but we are finding them at 1533. It is the opposite of momentum, one in which a trader can sell higher highs and profit. Keep this thought in mind the next two sessions.

On the downside…below the opening support zone, 1522 to 1520 is CRITICAL support. If we move below this zone on a 30 minute closing basis it should create a trade towards the bottom end of the old resistance zone 1518.50-1515. That zone is now neutral/transition…below this is key support between 1512.50 and 1510. Barring an outlier news event, I see no reason to chase ‘em down below this level.

I have included a chart on the DJIA and its 200 day MA “extension.” We are holding at the highest levels since the start of 2006, but more importantly, the highest levels since the 1980’s. Is this a sell signal? Possibly, but remember this…in 1999 the NDX went to +51% above its 200 day MA.

Equity Index Update

Brad Sullivan

The indices continued their divergent path in yesterday’s session and for those that use one index as a lead indicator to trade another index, it has been nothing but a painful existence over the past couple of weeks. Indeed, the only game in town right now is the spread trade between the mega-caps (DJ and SP) versus the small caps (ER2) and to some extent the NDX. As I outlined earlier this week, the volatility has been nothing short of amazing in these spreads, and the highest levels I have seen since the run higher in 1999 and subsequent collapse in the NDX. Rumors continue to abound about the trade over the last two weeks in these spreads, but, the only thing that really seems to matter is what we examined the other day with a couple of spread charts. Simply put, it was “mean-reversion” time. The last 2 sessions have been a painful reminder of how these spreads can operate – at least for those that stayed too long at the party. I have included an updated table that I first put into Monday’s update and a chart to show the extremes.


This morning, the SPM is trading higher on the heels of another +1% rally in China (why I’m not long the great wall I’ll never know) and more all-time highs in the DAX. Currently the SPM is trading at 1531.50, up 6.50 on the session – just shy of yesterday’s high and contract highs. Without any hint of economic today, save the DOE weekly inventories, one has to wonder -- is today finally the day the SPX takes out its All-time closing high?

The SPM was a pretty interesting trade yesterday as the market attempted to consolidate below my key 1528 level, but could not muster any sustained selling and gradually firmed up between 1527 and 1529. Lunchtime provided a bid and pushed the market a bit higher…however, by the time the final hour was underway the index could not hold onto the gains. In the final 30 minutes of trading the contract was sold into the bell, producing a new session low at 1524.75. Much of this seemed to be spread related and day trade long selling. This theory has gained traction in my mind with today’s solid open higher. Now the question becomes…where do we go from here?

Here are my levels for the SPM today: On the upside…resistance should be found between 1531.50 and 1534.50…if we can get a 30 minute close above this zone it is bullish. However, I do not think one need’s to chase ‘em up. Instead wait for a move back into this zone (31.50 and 34.50) to build up a long position that pushes towards the 1538 level. Stopping points along the way should be 1535.50-1536, then strong resistance between 1538 and 1541. IF THE SPM TRADES ABOVE THE RESISTANCE ZONE (31.50-34.50) AND DOES NOT COME BACK IN…CANCEL THE IDEA OF BIDDING IN THAT ZONE. In other words…if we trade up to 1538, I don’t want ‘em back at 1532.

On the support side…1530-1527 is a transition zone. It should provide support, but, not support that one utilizes to get long. 1526 to 1524 remains key support and should be used to establish buying points…below this 1522.50 to 1520 is CRITICAL. Only a 30 minute close below 1520 turns the switch to “sell” and even then it most likely will be tomorrow or Friday that the trade comes to fruition. In other words…don’t chase lows below 1520 to establish a position.

All told, volatility is already on its holiday and one needs to be cautious in this trading environment.

Equity Index Update

Brad Sullivan

The index markets continued their ascent into higher ground yesterday for much of the session. However, a late reversal in large cap oil issues seemed to bring an overall sale to the large cap indices. When it was over the SPM had dropped from its new contract high area of 1534 to its session low of 1526.50 before rebounding a touch at settlement. In addition the DJIA fell for what feels like the first time in about one year. However, the big story continues to be the action in the spreading between the various indices.

Yesterday, the ER2 and NQ rallied sharply. The spreads which I discussed at length yesterday – DJIA vs. Russell 2k, SP vs. Russell 2k – gave back a substantial portion of last week’s gains. How volatile was the spread action? Consider this a 1 unit spread of long 11 DJI minis and short -9 Er2 minis lost a WHOPPING -$10,540 ON THE DAY. The Spread trade of Long 10 SP minis and short -9 ER2 minis lost -$9,250. I CANNOT EMPHASIZE ENOUGH…THESE MOVES ARE OUTSIDE THE “NORMALIZED” PARAMETERS. To use option jargon…the tails are pretty fat in these spreads right now. I would associate this with someone, or a group of somebody’s being take to the shed and forced to cover this spread. Typically, when such a move happens, the size player on the wrong side of the bet is forced to pay up in order to get out. Whether or not this has been the reason for the dramatic move in these spreads is a bit of conjecture and rumor mongering. And, most importantly, it does not begin to tell the whole story about what is actually happening in the mega-cap arena. The bullish move in the mega-caps continues to play out on a liquidity driven theme…as traders our job is stay in touch with that theme. Final hour moves like yesterday afternoon tend to make one think that the “to is in.” Yet, for all these final hour sales…the market continues to find its way to higher ground. Keep this thought in mind when hitting bids.

I had a resistance zone yesterday that encompassed the 1528 to 1531 levels…the SPM gradually carved through that zone in the late morning and continued to hold above it as the CASH index made it above the 1527ish AT closing high…however, the market could not sustain the buying interest at the highs. Around 1:45 cst the SPM made another push to get above 1534 and failed…this time day trade longs ran for the exits creating a pretty good selling vacuum. That move pushed the SPM towards the morning and session low of 1526.50, before a slight bounce into the bell. The CASH index missed closing at AT high levels by a couple of points. The question today is this…will there be more selling?

Here are my levels for today’s trading in the SPM…on the Upside : Resistance should be found between 1530.50 and 1531, above this 1532.75 to 1534.50 is CRITICAL. If the contract can get a 30 minute close above this zone, it should produce a “walk em up” type of trade towards 1538.50. If long…I would look to exit between 1538 and 1541 as this zone will be difficult to push through for the contract.

On the downside…I have a neutral zone between 1530 and 1528. A 30 minute close below this neutral zone should provide a push lower. 1526 to 1524 remains a support zone and will be difficult to close below on a 30 minute basis. However, I would look for some “spike” oriented selling that would push the index towards 1522 before bouncing. Support is found at 1523.50, then 1522.25 to 1520. Any 30 minute close below 1520 and things will get interesting…however, much of that interest will most likely be tomorrow and Thursday. I suspect that below 1520 and we will have pushed as far as possible for today’s session.

Equity Index Update

Brad Sullivan

The index markets opened higher and stayed firm throughout Friday’s option expiration session. Mega-Cap issues continued to dominate the trade as the SPX came within a whisper of its All-Time closing high of 1527ish and the DJIA just kept on trucking into unknown territory. The session itself was pretty mundane, but the buy side pushed pretty aggressively over the final 30 minutes of trading to create new high prints. This morning we are called to open around UNCH as Shanghai was able to gain another +1% in spite of a rate hike…the rest of the global indices are trading – on balance – slightly higher as well. On the currency front, the dollar continues to catch a bid in here and one has to wonder, given the sharp correlation the last few months between a falling dollar and rising equity market, whether or not there will be any “give” in the equity trade this week.

It is on this front that I am examining the SPREADS…simply put, the movement between the SP and DJIA vs. the small cap Russell 2000 is astounding. Last week alone, a single unit (for my purposes) pushed into the stratosphere of expected returns. I have included a spread table with explanations in today’s chart section.

In my opinion, this spread action is about the only game in town. Is the shift into mega-caps the final leg of this 5 year old bull market? How much more is on the table in these spreads? Is it time to play a reversion-to-mean trade? One thing I do know from years of index trading…a shift out of one area/sector of the market typically requires a several week period of overall market disruption. The disruption is characterized with higher volatility and increased trading setups for those making a living in this game. So far, we have not seen any extended periods of this action. I would suggest that we may have a summer trade that surprises many with the above listed characteristics.

For today in the SPM contract, here is what I am looking for…on the upside, the index should find solid resistance between 1528 and 1531 as this zone should halt the market in the short run. If we get a 30 minute close above this zone, I will not chase ‘em up intentionally but one has to be prepared for a potentially buy stop rally above the cash closing highs in 2000 (call the trigger zone 1528 to be safe). Up here…it is pure guesswork. I would suspect stopping points to be 1535, 1538 and 1541. I must state that I put this rally scenario’s odds in the longshot category.

On the support side of the equation…1526 to 1524 is a key zone…any 30 minute close below this level should shift the trade to bounce selling. Accordingly, I would look to get short on any bounces into the aforementioned zone. Targets for this trade would be scale down from 1522.50 to 1519.50. Below this level we hit our old friend 1518.50 to 1515. This zone has now become a neutral/transition zone. Let this area play out and examine to see if it becomes support. An HOURLY close above 1520 (after testing this zone) would do the trick. Keep an eye on the SPREADS.

Equity Index Update

Brad Sullivan

The index markets spent most of the session in range trading conditions before a spirited push to new contract highs in the mega-cap SP and DJ contracts. However, the buying power was offset by long liquidation (whether or not this was day trade long selling remains to be seen) in the final 30 minutes of trading. When the session was finished, the SP finished nearly -3.00 on the session and -6.00 from the daily high reached during the afternoon. HOWEVER, this morning finds the market bid sharply higher with the SPM contract trading +5.25 at 1520.50 – only -1.25 to the contract high made yesterday at 1521.75. The news is limited; however, retailers JCP, KSS and JWN reported solid earnings last night and GE agreed to sell its plastics division for a smooth $11bln and INTC was upgraded to a buy at MLynch. In addition, European indices are rallying nearly +1% across the board.

While all was quiet on the domestic index front during yesterday’s action, the commodity markets went wild. Copper was down nearly -5% on the session, while the energy complex shot higher on a couple of production disruptions. As far as the indices are concerned, the Copper story, in my opinion, is where the potential issues lie. Why, simple one word CHINA. Copper inventories in Shanghai have risen to over 14,000 tons, suggesting that we may have economic growth slowing in the belly of the beast. Obviously this China slowdown has been discussed widely…but it has not shown its face the past few years. Is this the time for a Chinese recession? It’s doubtful…but for the short term trader it is worth focusing on what Shanghai does each and every session. So far…not much, but keep your eyes open the next few weeks for some disruption in the Asian rally.

Option expiration today and EVERY NOW AND THEN a potential trade comes into the zone around the opening bell. Today may be such a day. With the market trading around yesterday’s high zone watch FOR A POTENTIAL PRE-MARKET PUSH TO NEW CONTRACT HIGHS AROUND 1525. THE OPENING SHOULD BE VIOLENT AND CHOPPY IN A ZONE BETWEEN 1524 AND 1526 BEFORE REVERSING COURSE BELOW 1521.50 TOWARDS 1518.50. THIS TRADE SHOULD NOT TAKE MUCH LONGER THAN 30 MINUTES TO COMPLETE. Keep in mind that the SPM needs to trade well above yesterday’s highs for this SCENARIO to be worth betting on. In addition, it must happen before are immediately after the opening bell of trading.

As for today’s levels in the SP contract…pretty much the same as we have had the past several sessions. On the upside…1520.50 to 1522 is a Mild resistance zone, above this comes the 1524 to 1526 level which should provide a tougher test to get through. On the extreme upside today, 1528-1531 is an excellent target area to liquidate trading longs. Keep in mind that expiration sessions typically get very stagnant after the first 90 minutes of trading is completed.

On the downside…1518.50 to 1515 is now a Neutral/Transition Zone. The first key support zone lies between 1512.50 and 1510.50. Only a 30 minute close below this zone is a negative…and that brings us to the ballgame support area of 1507 to 1504.

When all is said and done…expiration Friday’s are normally sessions to keep it close to the vest. If the opening trade I outlined plays out, it typically creates the entire session’s range within its boundaries…so be wary of playing any “follow” trades after the morning is complete.

I have included 3 charts today…one is a 1 minute SPmini chart with volume from yesterday’s high print. Also the weekly OIH chart, as the oils continue to explode and finally the monthly gasoline futures.

Equity Index Update

Brad Sullivan

The index markets chopped back and forth in a rather uneventful morning session before turning on the headlights and pushing to high contract closes in the SP and DJIA. Mr. Buffet and Buffet Jr. (Eddie Lampert) both made splashes with investment stakes in JNJ and C respectively. That news gave investors another reason to be buy stocks as the general assumption is that if two value oriented players are raising stakes in equity holdings, why not me? Amidst the buying in mega-caps came a sharp move lower in metal based commodities. It is worth noting that over the last three months there has been a “linked” move with these commodities and domestic indices. If the metals roll over…will equities follow? I hardly think it will be that smooth, however, this divergence is worth keeping close tabs on over the next few weeks.

Overall, the SPM market remains contained within a tight trading range…essentially 1518 to 1505 with some outside push attempts. From a trading perspective this has been an excellent pattern as the market continues to bounce off the 1507-04 zone and fail in the 1518.50 to 1515 zone. Given the strength of yesterday’s close in the large cap SP and DJIA one has to wonder if today will be the day to finally break above our resistance. Keep in mind that – TYPICALLY SPEAKING – the Thursday prior to expiration is a one-way street. In other words, the odds are suggesting a choppy morning, followed by a late morning push into the close of trading.

Accordingly, the zone of resistance from 1515 to 1518.50 remains crucial for the session. Any 30 minute close above this zone should be purchased – HOWEVER, if it is early in the session (within the first 2 hours of trading) I will not chase ‘em up. I will try and get long in that zone with some reasonable breathing room for a stop (30 minute close below 1513 would do it for me). IF the index takes off higher and does not allow entry, we should be on the cusp of a strong one-way street rally session. Typically, I would look for a net change greater than one Standard Deviation…now my 8 day reading in STDEV are very small (only a net of +5.50 would take it out) however the 22 day reading is at a more reasonable +10.20. Essentially, if a one-way street develops I would look for the market to trade +10.50 to +1300 on the session or 1528 to 1531 in a zone for exiting longs. Along the way look for some stoppage around the 1525-1526 level, but expect any dips to be shallow.

On the downside, if the market fails to make any inroads above the key resistance zone, one has to play for a move back towards the 1512 to 1510.50 support zone. Below this, look for a choppy move for a trade into the familiar 1507-1504 zone. Only a 30 minute close below this zone will open up the selling door for a move towards 1496. HOEWEVER, much like I wrote yesterday, in this scenario expect lots of chop and spike oriented action.

I have gone a little chart crazy today and have included several that are worth examining. One of the key elements in trading is focusing on what the market is focusing on. Accordingly, I have the resurgent IBM (now 6.5% of the DJIA weighting), the Yen Futures vs. SP futures chart, a possible divergence in the Copper and SP chart as well as potential blow off top move in the long DJIA vs short Russell 2k chart. These charts represent a nice cross section of what has moved the market the past few months.

Equity Index Update

Brad Sullivan

The index markets suffered a lunchtime reversal from higher levels in action that was whippy and aggressive. Volume flows were heavy, particularly around certain price zones in each contract. After the market pushed lower from its lunchtime high prints, the selling was reminiscent of the old days (think mid 1990’s) when the markets would have big swings during expiration week. The last couple of years volatility during expiration week has been infrequent…however, when it has appeared the moves have been violent and typically on the downside. I recommend caution on any rally buying for the remainder of the week.

Yesterday’s trading action continues to show that we are in a trading range. How long we stay and the size of this range remains the proverbial X factors. However, it is worth noting that given the sharp rally over the past 8 weeks (wasn’t it just March’s expiration week when the indices printed collective lows during Wednesday’s lunch hour?) we SHOULD expect some type of sideways to downside action. In fact, that downside action has been playing out in the Russell 2000 and NDX. The Russell is essentially trading at UNCH for the month and the NDX is holding just above its flat line level for May. Both indices are severely underperforming against the SP and DJIA. If this rotation out of small and into large caps continues it should bode very well for higher ground in the world of mega-cap indices.

Here are today’s levels for the SP : On the upside…Resistance should be found between the 1510.50 and 1512.25 zone. I suspect that this zone will find many willing sellers that are looking to capitalize on yesterday’s selling from contract highs. A 30 minute close above this zone brings us back into the critical 1515 to 1518.50 zone. Only a 30 minute close above this area will turn the dial to “buy”…however, at the risk of sounding like a broken record, DO NOT CHASE ‘EM UP HERE. Wait for the trade to settle back into the 15-18.50 zone and attempt to position build for a sharp bid into the close of trading. If unable to build the position, wait for the final 30 minutes before playing the “chase” game. In this scenario we should see a continuation move higher into the close of trading. The levels would be a guessing game, but I think 1525 to 1526.50 would be worth targeting.

On the support side of the equation, 1507 to 1504 remains my CRITICAL SUPPORT ZONE. Any 30 minute close below this zone should produce a CHOPPY downward push towards 1496. Be on the lookout for violent program trading spike moves both higher and lower in this scenario. In other words…1502 new low, 1505.50 trade, 1501 new low, 1504 trade is a sequence that could play out. Accordingly, one should get the chance to build a short position on any 30 minute close below the zone, in the actual zone itself at a later time (1504-1507). HOWEVER, I would look to put on a partial position on the first 30 minute close below this zone – at levels lower than 1504-1507 – in case the above scenario does not play out. If the market moves above 1510 after creating a 30 minute close below 1504, then all bets are off. On the way to 1496 look for support points at 1501.50-1500…1498.50 and 1497.

I have included three charts today…one 5 minute SP mini chart over the last 4 sessions with comments, a NDX daily chart and the spread chart that keeps on giving of long SP-short Russell 2k.

Equity Index Update

Brad Sullivan

The table above was all the excuse needed for the index markets to move sharply higher at 7:30:02 CST. Currently the SPM is trading higher by 1.80 at 1510.50…however, that does not tell the whole story as the contract was trading around 1504 before the CPI release. The question now becomes this for today’s trade…can the indices hold this pre-market turnaround bid?

On Friday I wrote that the odds were moving towards a trading range type of environment of roughly 2% in SPM…essentially 1519 to 1488ish. We have yet to test the downside of that target range and actually came within a whisper of challenging the high level of the upside range yesterday morning. However, the indices could not sustain any buying at higher pricing zones and the SPM failed to generate anything but SELLING interest in the key 1515 to 1518.50 resistance zone. That zone is becoming more powerful with each failed attempt to push above it. The subsequent selling yesterday took the SPM to a shade under 1503 where it challenged a 30 minute close below the KEY 1507-1504 support zone. HOWEVER, the contract could not generate any sustained selling underneath 1504 and it proved to be a solid entry point for a trade higher into settlement as the SPM contract finished at 1508.70.

When looking at yesterday’s trade in the SPM it is becoming more evident that the contract is biding time between the 2 key zones 1515-18.50 and 1504-1507…whichever zone breaks first should produce “follow” price action. In “follow” I simply mean a momentum based push higher or lower. Once again, I will be using a 30 minute close for these zones to initiate any follow positioning.

On the resistance side today…1510.50 to 1512.20 should be a difficult zone to get above for SPM…if it moves higher in here the contract should once again challenge the key 1515 to 1518.50 zone. I suspect that any probing of this zone will take TIME as the long side will quietly use a supporting bid at/underneath trading levels to exhaust the sellers. Once/if the index gets into this zone, all bets are off as it should provide a choppy 2-way trade that gets a little bit higher than yesterday’s 1516ish trade. Look for a probe into 1517.50 and some short sales to push the index back down. If we get the holy grail 30 minute close above 1518.50 I still will not chase ‘em up. Rather wait for a pullback into the key zone to establish longs for a late session push higher. If this pullback does not materialize, wait for the final 30 minutes to establish a run higher into the bell position.

On the support side…look for the 1509 to 1507.50 zone to be the first support zone. This zone was the first level at which the market traded after CPI was released. Underneath 07.50 we have the critical zone of 1507 to 1504. Again, a 30 minute close above this zone should lead to a push towards 1496. Along the way, 1501 to 1499.50 is support and minor levels are found at 1498 and 1497.20.

ONE KEY TO REMEMBER DURING EXPIRATION WEEK…MUCH OF THE BUYING THAT TAKES PLACE COMES IN AFTER 10:00CST. IF THIS PATTERN HOLDS, LOOK FOR AN EARLY PUSH LOWER THAT CREATES A FIRST HOUR TRADING LOW, FOLLOWED BY A STEADY BID HIGHER INTO THE CLOSE OF TRADING.

Equity Index Update

Brad Sullivan

The index markets zigged when many a trader was looking for a zag on Friday. A tame headline on the PPI reading and a weak Retail Sales report may have rekindled some hope of a FED easing before the calendar year ends. However, Friday’s sharp bounce seems reminiscent of many moves during the past couple of years in the index world.

Seemingly many shorts, players on the sideline and active traders continue to wait for that elusive “green light” to get short. Days like Thursday get the interest going and players tend to walk into a bull trap type of session. The strong buying that hit the market around 9:10-9:20CDT (which remains a KEY time zone for relative highs/lows intraday) pushed the SPM7 back into the critical 1504-1507 trading zone. From there the index was able to register a 30 minute close above this key zone and turn bullish. However, as I pointed out on Friday, the odds were to get long back in the key 04-07 zone for a push higher. That push happened on heavy buying near the cash close of Friday’s trade, eventually leading to a settlement in the SPM7 at 1512.20 and all but erasing Thursday’s downdraft.

So…what was learned from Friday’s session? Simply the same pattern we have seen play out over and over the past couple of years in the marketplace – the comeback rally -lives on. And in each of these instances, the market has eventually found its way higher. The fact that we recovered so much of Thursday’s decline during one session and that we are heading into option expiration week, puts the potential for another round of higher highs clearly in view. Certainly CPI and Housing Starts (released on Tuesday and Wednesday respectively) will have something to do with that. But, keep in mind that option expiration weeks tend to trade one of two ways – a slow push higher…or a violent decline. The odds of the decline look small – however, we must register them with the data hitting the tape this week. If CPI were to come in “out of line” with inflationary readings, the snowball selling potential would be in play for the majority of the week.

As for today, here are the levels for SPM7. On the upside, look for a moderate choppy zone between 1512 and 1514 as players begin to establish their positioning in here. Above 1514 we hit the key zone between 1515 and 1518.50. Any 30 minute close above this zone is bullish – however, once again I will not be chasing ‘em in here. I will, however, use any dip back into the zone (15-18.50) to enter long positions with a potential trade towards the 1520.50 and 1522 zone. If there is no chance to enter the long side in this zone, wait for the final 30 minutes and look for an aggressive push higher into the bell.

Support zones are found from 1509.50 to 1508.50…below this is the key zone from 1507 to 1504. Any 30 minute close below this zone adds a certain amount of confusion moving forward and should be sold short with a target of 1496-1495.

Equity Index Update

Brad Sullivan

The index markets suffered through a day of consistent selling to settle sharply lower on the session. Key short term support levels were violated in most of the indices, particularly the SPM7 which fell below the key 1507 to 1504 support zone and could not muster any sustained buying when retesting that area. Today’s action will be influenced, on the open at least, by the PPI and Retail Sales reports. PPI came in better than anticipated on the core rate (I wish I could exclude food and energy costs each month as well) and Retail Sales was on the disappointing end of the spectrum. That being said, the Retail Sales figure is likely to be discounted as the market will give the consumer the benefit of the doubt for a couple of more months…however, on a longer term basis, this reading is worth putting in your files as a potential turn in the consumer. The PPI reading continues to show elevated levels in food pricing and I know that it cost me $80 to fill up my car the other day, yet the marketplace continues to downplay any meaningful impact on the economy from these pricing pressures. It reminds me of the quote I used the other day…FOCUS ON WHAT THE MARKET IS PAYING ATTENTION TO, NOT WHAT YOU WANT IT TO PAY ATTENTION TO. Right now, in my opinion, the marketplace is focusing on the supply shrinkage in the equity market due to private equity takeovers and global liquidity. Until these underpinnings slow or stop, this market will continue to be firm…with hiccups along the way.

The question today is this…was yesterday’s hiccup on the downside the beginning of something more? As I have written this past week, nearly all of my readings are at extended levels and it provided a good entry to flatten longs or establish a moderate short line. One of two scenarios play out from these readings…a sharp drop of nearly -4 to -5% or a moderate drop of around -2% that turns into a trading range just underneath recent highs. Right now I am leaning to the trading range scenario, but that could change with a shift in any key inputs – particularly Euro/Yen and Dollar/Yen. I will continue to use these pairs as key barometers for index trading.

Here are the levels I am looking at for today’s session in the SPM contract. Resistance will be found between 1502.50 and 1504 in a moderate and choppy zone type of trade…above this is the key 1504 to 1507 zone. Only a 30 minute close above this zone will begin the reversal process from yesterday’s downside damage. If we do get a close above this zone, I would shift to playing from the long side – HOWEVER, be prepared for probing BACK into the 04-07 zone. In other words, the 30 minute close gives the signal but the odds are you can get better pricing by being in 04-07 zone than outside it with a little patience. On the downside…Support will range from 1499 to 1497.50. Below this level, look for some spike moves lower towards 1495 and 1494.50. Only a 30 minute close below this zone will produce more selling…in the interim I would look for program type spikes lower that would generate trading into the 1491 area.

I AM LOOKING FOR THE TRADING BELOW 1494.50 TO BE SPIKE ORIENTED WITH SWINGS OF 3 TO 4 POINTS BACK AND FORTH.

Finally, keep in mind one fact and that is that Friday trading has been extremely quiet the past several weeks…is it time for a change? I have included a chart showing the 30 minute closes in SPM7 since May 1st. Notice the failure to get back above 1504…interesting.