Rollover Day

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(click image to enlage chart)

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Volume shifts from the June to September futures option contracts today with a difference of about –4.25 points from ESM10 (June) to ESU10 (September).

The previous chart numbers have been adjusted to reflect the new contract pricing—so, for example, the key level of 1051.25 from the June contract is now 1047 on the September contract, and so forth.

I have included a daily chart above to show the Big Picture setup on ES…

There are three sets of trendline support and resistance drawn in representing the long-term (LT), intermediate (IT) and short-term (ST).  I often use these to cross-reference Stops and Targets’ numbers to be sure that I am interpreting the overall scenario from a broad perspective.  Stops and Targets uses a different method of calculating primary trendlines and theirs is faster and more accurate than the old school trendline method—but they play nicely together as a form of confirmation of the big picture.

I read this is an intermediate term bear market that has pulled back to the last possible trendline support (before breaking the February 2010 structural low).  This is the decision zone where it either bounces off LT support–or where the next leg lower can start with a break and hold below the nearly horizontal trendline labeled ST, which is the ‘trap door’ below.

I have been pointing out the trading range between 1032.50 and 1102.50 (1036.75 to 1107.75 on the old June contract) and it is shown as a yellow rectangle on the daily chart above.

A narrowing triangle has formed in the ST that should define a breakout when it comes.

If a long-term bear market is in store—then a break below the February lows will define the trapdoor opening.

On the other hand, if what we have just experienced was a deep pullback to as low as they could go without breaking the macro LT bull market structure, then we could see a rally that starts to roll over the S&T trends to the upside.

For now…this is all about time and price as that triangle narrows–and a decision is forthcoming on the direction that the market moves away from the S&T long-term primary trend line.  The range rectangle and ST trendlines define the containment zone at present.

This market has been a range trader’s paradise for the past few weeks (as has been illustrated by the red and green arrows on previous VST charts).

The S&T generated partial cover line at 1047 (1051.25 on June contract) that I pointed out a couple of days ago has worked out nicely and remains the earliest disciplined S&T countertrend trade setup for those anticipating an eventual upside breakout.  I definitely would not recommend staying countertrend long under that area, however, as the gravity from the February stops might be too much to overcome if price drifts back down from the present levels.  VST bulls are in control here early on and so let’s see where this early momentum goes–especially at LT primary trend resistance.

S&T points out in the multitrend blurb for ES that in a true long-term bear market, ES should not close above the long-term primary trend line (currently at 1078) once the trend is established…so that is something to keep in mind.

The initial IT bearish move from 1208 down to 1051.25 (June contract) has been great (if you are bearish) and S&T nailed it perfectly.  We were recently warned by spotter signals that a bounce of significance could be developing, and this initial pop off that signal line is something to watch, though it has now hit the initial spotter target, which is the closest primary trend line.  ES 1047 should continue to work out well here as a bull/bear line inside the range—but those range breakout boundaries mentioned earlier are the real ultimate prize.

…my .02