There have been some interesting observations over the last 2 days, especially the defense of ES $1400 and EUR/USD $1.29.
Despite a lot of bad news from a US disaster named Sandy, to AAPL's bad news to Greek bad news, the Canadian TSX is seeing a risk on mode, around noon time, the TSX's correlation transferred to the SPX futures would equal roughly $1425 and S&P cash $1430!
When ES opens for overnight trade at 6 p.m. tonight, it should be very interesting.
As you probably recall, we were looking for a range/consolidation before the market heads higher (which we positioned for last week), ultimately allowing us to sell in to strength.
My experience has been that Wall Street sets up these smaller cycles by accumulating or distributing and this is why I say reversals are a process, not an event as it takes time for them to re-position these large positions they put on or take off.
Last week we saw the range we were looking for, we even saw the head fake move that precedes the reversal more than 4 of 5 times we often look for as a timing cue.
Again, in my experience, once these cycles are put in place, they tend to be run, how Sandy will effect a planned cycle I can't say, I imagine some adjustments were made late last week, however one of the more interesting things we've been able to see where there's little to see is the defense of key levels and money flowing to the TSX.
Here's the 3C charts for ES and the NASDAQ futures over last week.
"If" the TSX is telegraphing the US Equity markets in some way (and we'll know more when ES opens tonight and through the night), the US markets may make up for lost time with a big gap up, one that would catch a lot of late last week's shorts way off-guard and feeling more than a little squeezed.
As a reminder, the $USD which is seeing some weakness this week in FX trade, was telegraphing that weakness to come this week with negative divergences late last week.
On the flip side of that, the Euro was telegraphing positive divergences last week (positive for the market near term) and we've seen how these ETF divergences will wait to play out until the actual equity market is open!
And interestingly, for timing a 2 min very strong leading positive divergence last Friday.
The averages had already put their positive divergences in place by last week...
And most of all we were looking for this to happen in a range, it didn't have to be perfect and as I said before it started, you probably wouldn't recognize it until it's through.
Finally I can't finish this post without mentioning the leading indicators we use, while some (and probably VERY few) may have changed a bit since last week, the trends were very strong and in positive divergences with the SPX; these have served us well in the past as leading indicators.
We may very well have a very interesting market tomorrow, we'll take it one bridge at a time though and see what ES looks like in a bit.
