ES Update

I am back from a vacation trip, rested (sorta), and ready to go…

This market is scaring a lot of people as we near some critical trading dates, but as I pointed out in my last post–the pros have had every opportunity to yank the rug if they so wanted–but they have instead passed (so far) on those news-related events.

There are a few critical trading days on the calendar coming up…

-December 10th is Option Rollover Day from December 2015 to March 2016 contract
-December 16th is the final 2015 FOMC meeting release
-December 18th is December Options Expiration Day and quadruple witching

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Let’s take a look at the daily bar/trading range chart…

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Screen Shot 2015-12-03 at 10.42.49 AM

 

 

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I have placed vertical lines on the chart above to show where the rollover and expiration dates will fall.

The major formative event on the chart above is the big engineered takedown that started it’s final leg down on 8/19 just before the August option expiration date (8/21).  If you look a bit closer though, the pros actually kicked off that move back on 7/22 with a breakaway gap down from the 7/21 close at 2105.25.  That original breakaway gap has been a key number–as I pointed out on the eventual fill on 11/3.  You see, the pros hold all the cards under that breakaway gap line and that is the key resistance the market has been working against ever since.  My theory is that the pros were sellers of calls above that line and were buyers of puts below until the key downside target at 1851 was hit.  The pros then switched to being sellers of puts priced under that line and buyers of calls above.  Once the gap was filled at 2105.25 the pros cashed out for huge gains on their calls and now we are awaiting the closing of the books for the year at the key dates shown above on the contracts they sold.  If the above thesis is correct the pros have been motivated to hold the market below a breakout to new highs and though they have plenty of cushion to the downside, I think they might want to stay above 2025 if the goal is to press higher once the option play from the engineered takedown has run it’s course.

We’ll see how this all shakes out –but as I type the first level of stops underneath is at 2065.50.  If I were pulling the lever, I think I might take those VST stops and then reverse to start building the next technical goal in an ongoing uptrend, which would be a higher ST pivot low.  In order to eventually regain a fully-bullish trending market the pros will need to build a ST pivot above 2025.  The pros already have the minimum pullback needed without taking out 2065.50–but they do love running stops.

If price can stay above 1998.50 for a couple more days the IT range bottom will tighten to that line–and as I pointed out above, the next goal for the pros would be to build a higher ST pivot low.

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Screen Shot 2015-12-03 at 10.48.33 AM

 

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Zooming in to the hourly bars to fine tune the analysis…

The first point where sellers come in is under 2065.50.  The first downside target is the rising ST trendline and then the next target lower would be the open gap at 2044.25

Next upside targets would be the descending ST trendline, which is currently near the 2108 area, and then the bear stops resting just above 2110.25

Some have asked me about the recent smattering of top spotters–especially those that are NASDAQ 100 related.  That is something to keep an eye on if the pros yank the rug, but most of those are as yet unconfirmed–including the related indexes themselves (NQ and NASDAQ Composite).  So far, it looks like the pros are just trying to run out the clock into the key trading dates mentioned at the top of this post.  If we get a significant break, I will post here with new targets.

As I mentioned at the top, nearly everyone I talk to is concerned about the market and wondering what to do into year-end.  I imagine it is a relatively easy market in which to sell puts–so think about that for a bit as you contemplate what might happen ahead going into FOMC and OpEx.

…my .02

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