S&P 500 FUTURES DOWN 4 IN A ROW

By Danny Riley

When you look at the title above, what do you think? Does the S&P down 4 in a row mean it's a bear market and the S&P is going lower? Or does down 4 in a row mean that the S&P is getting ready to rally again? That, my friends, is the million-dollar question!

No doubt about it, the S&P looks weak. And no doubt about it, the S&P futures have been down 4 in a row, but if you look at the closes since Oct. 1 they paint a different picture. Looked at correctly, the S&P has been up 4 of the last 8 or up 4 in a row and then down 4 in a row.

S&P FUTURES NET CHANGES FOR OCT

The reason we are doing this is that if you pull up a weekly chart of the S&P you will see that the S&P has been range-bound for the last two months. So instead of telling you what we think, let me tell you what we know. We have seen this price action many times before. After the S&P makes a high, it hits stops and forces people to cover and get long. The next move is to sell off, force the longs to sell out, hit the sell stops and then reverse. Will it happen this week? We think so … Below is the Ned Davis S&P cash study for the October expiration.

NED DAVIS S&P CASH STUDY FOR THE OCTOBER EXPIRATION

Friday (before)   up 19 / down 9 of the last 28 occasions

Monday              up 21 / down 7 of the last 28 occasions

Tuesday              up 12 / down 16 of the last 28 occasions

Wednesday         up 15 / down 13 of the last 28 occasions

Thursday            up 17 / down 11 of the last 28 occasions

Exp. Friday        up 16 / down 12 of the last 28 occasions

So if you follow the Pit Bull's trading rule about looking for a low the Thursday / Friday the week before the expiration, you have a few things going for you: 1) The S&P has been down 4 in a row,  2) the S&P tends to bottom the week before the expiration, and 3) the stats are good Friday and Monday.

Our view:
I admit to being off the last few days. That said, it's a new day. They are now saying that the stock market favors a GOP victory and that stocks will fare better with a Republican in the White House. We don't think it really matters who wins when it comes down to cleaning this mess up. We have said it before and we will say it again: The credit crisis will last over 10 years if not longer. As far as today, we are back to buying weakness and looking for the Pit Bull's Thursday / Friday low. As always, please keep an eye on the 10-handle rule and make sure you use stops.

• It's 6:00 a.m. and the ESZ is up 5 handles at 1431.25, crude is up 66 cents at 91.91 and the EC is trading 1.2895, down 10 ticks.
• In Asia 8 out of 11 markets closed lower (Shanghai Comp -0.81%, Hang Seng +0.38%).
• In Europe 10 out of 12 markets are trading higher (CAC +0.69%, DAX +0.67%).
• Today's headline: “US Futures Rise On CitiGroup Upgrade.”
• Economic calendar: Today:  International trade, jobless claims, import/export prices, oil inventories, 30-yr bond auction. FRIDAY: PPI, consumer sentiment, GM resumes Volt production; earnings from JPMorgan, Wells Fargo.

• VOLUME LOW: 1.67mil ESZ and 7k SPZ traded
• SPREADS: 151 SPZ/H spreads traded
• FAIR VALUE: S&P +4.00, NASDAQ +12.00

BRIAN'S S&P 500 RECAP
The equities are trying to shake off a four-day cold spell since the rotation blew in last Friday. The futures were flat to lower most of the day due to a buyers strike. The European Union's financial transaction tax garnered some attention, but did / has not had much effect on the markets as of yet. Today's, actually this week's, selling pressure was not heavy, but the deterioration paved the way to retest the low end of the recent range as preannouncement / warnings continue to trickle in. Many of the same headlines are hovering over the markets. The Middle East may have moved up a notch, but the crude market was not showing much concern today. The Eurozone should continue to play out throughout the month as the global health / growth remains the focus as we await the uptick in earnings. A couple of banks report Friday, but next week starts the pickup and the following week will be heavy. Some traders are ready to stoke the fireplace, with a glass of wine nearby and the big screen tuned into the VP debate.

Morning observations: mts2 (07:18:19) Trader's sell signal – yesterday the stochastic crossed below its moving ave again; this joins the short-term sell signal from 9/24. Yesterday's volume light – below 30d ave; not panicked selling, so decline likely could continue…

Posted by David – I had a thought regarding the MrTopStep webinar last night. I have multiple accounts, each are set up for particular trades, ie: I have one account I use for swing trades, I have one I use for “TREND DAY” trades, and I have one for scalping only. It's a simple way to manage your trades without emotion and without getting trapped, ie swing short but day is TREND UP. On days like this, my swing account is ss, my DDay TREND account is flat and my scalp account is ACTIVE and trading that way allows me plenty of time to find…Jim said – Yes DW that is why I forget where I am sometimes get caught in the moment…

Wednesday started with 225k ESZ and 1.3k SPZ traded on Globex, trading range 1437.50 – 1431.50 / Tuesday's RTH's, pit range was 1450.70 – 1435.50, settled at 1435.90 down 13.9  handles. Today's RTH's opened unchanged at 1435.80 – 1436.20 1434.50, traded 1436.80 at 8:33CT and down to 1432.80. A retest of the opening range held which was followed by a new low of 1432.20 (Globex low 31.50 before some sideways trade 1433.50 – 1436 area the OR. The early choppy trade continued as 1437.30 new high traded at 9:28.  EUBIE (09:29:08): Gotta GET UP & GO off the 1437 WIDOWMAKER or potential early 2XTOP / Top BBands 1437+ / all 1 lotters 1437+ / NO ONE HOME YET 1437. 1433.80 traded by 9:51 followed by more sideways trade. By 10:30 Europe's close, the equities began to erode, stepping lower to test 1430 by 11:50, bounced to 1432 area and flopped to 1427.50. EUBIE (11:30:22): as much as the 1437 2XTOP / 1429/30 potential 2XBottom TEST / 9 day lows 1430.00 / 10 DAY LOW is 1427.75.  The tech sector continued to act letharagic, but not nearly as heavy as Tuesday. and the transports were struggling – to keep gains on the board as the 5000 level has shown some support so far. A much bigger area being watched should be 4800 area. The afternoon session was trading sideways between 1426 and 1429 area as we headed into the final 30 minutes.  Just after 2:00 the SPZ got hit by a few small sell programs that took the future back down to 1436.20. At 2:45 11 of the Dow 30 were for sale, small, and the broader market MOC showed sell 40mil. On the 3:00 cash close the SPZ traded 1427.41 and then went on to settle at 1435.90 on the 3:15 futures close, down 5.5 handles on the day.  

MrTS video:  http://www.mrtopstep.com/10-10-12-tim-haefke/

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CONTRIBUTORS' CORNER

SPX CHARTS

Roger Volz, BGC Partners

SP 500 Futures 60 min Chart and Indicator …. Sideways consolidation above 1432.50 helps to correct ST oversold readings issued on yesterday's dive below 1436.00 and again below 1433.75 on a second stair step leaving a negative consolidation pattern. The next stair step down for technical extremes to 1425.50-1424.50. Resistance ledge stand outs against yesterday's am low at 1437.00 then with major firming above 1443.60- 1444.25
ST OB > 1466.50 from 1474.50 /// ST OS < 1424.50 from 1433.75
Additional intraday readings
VST 5 min ……2 way chop; VST 5 min OB > 1443.75 /// VST 5 min OS < 1429.50 -1428.75
VST 15 min …channeling down; VST 15 min OB > 1453.25 /// VST OS lowered to 1425.50
Daily Chart Focus Levels….Double topforms against the next group of concentrated resistances at 1460.50 / 1461.50 / 1464.00; momentum loss sub 1444.00 now reforms as concentrated resistance…..finding footing against Sept lows, for now 1428.00 / 1424.50 / 1421.60
SP1 Daily Resists ….…1442.10 / 1444.00 /1446.25 .….1453.00….1460.00-1461.50-1464.00……1467.00………..1475.00…..1478.00…………1492.00……………1506
SP1 Daily Supports….1428.00-1427.25……………1419.50 ….. 1413.00 …. 1405….1401.00/ 1399…..1390.00…….1382.00
SP1 Daily OB >1478.00 (1485.50 for raise) /// SP1 Daily OS < 1348.50 from 1343.00
Weekly Chart Technical Stance and Focus Levels….our most recent notes have referred to a double top falls short of testing the next ledge of resistance in our intermediate term model at 1469.50-1470.50. A consolidation pattern begins < 1446.50; rising 8 wk SMA is key for correction at 1436.30; last week's low at 1428.00 now for a continuation signal….inside range 1453.00 / 1424.50 lowered from 1470 / 1441.50…outside range 1485.80 / 1419.75 for key reversal
Monthly Chart Technical Stance and Focus Levels …..a lower high so far with Oct versus Aug 1467.50 – 1466.00 thus avoiding a lift into strong positive > 1481; our last note had us “on guard for a Oct lower high 1467.50 -1457.50 (current)” ….inside range 1481 / 1405 (1357) lifted….outside range 1533/ 1273

SP 500 Futures 60 min Chart

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