Friday, April 11, 2014

E-mini S&P correction?

By Erik Tatje

E-mini S&P 500 (CME:ESM14)

Following one of the biggest, if not, the biggest down day of the year, all eyes are on the U.S. Indices and whether or not the recent weakness in price will materialize into a larger correction. Price action is currently at a very important structural pivot on the chart. The 1823.25 level represents an area of support that has supported price on multiple occasions, most recently on 3/16. If price begins to fall below this level, it will represent a relatively lower low on the chart, calling into question the previously bullish intermediate-term bias.

This would certainly change the landscape of this market, as the general consensus has been extremely bullish for some time now. As would be expected following such a forceful move lower, the 20-period SMA (on a 30-minute chart) is below the 50-period, highlighting the negative momentum in the S&P 500. Furthermore, the recent bounce off the 1823.25 pivot corresponded with a 20 reading in the RSI, representing the “oversold” level in a bearish market. Near-term momentum would likely be categorized as negative at this point with intermediate term sentiment remaining neutral to slightly positive until a breakdown below 1823.25 occurs. If the negative pressure is going to continue to exert itself on this market, look for corrective rallies to fail below the 1842.00 pivot. Any strength above this level could very well produce positive follow through and erase some of, if not all of yesterday’s losses.

E-mini S&P 500, 30-minute Bar Chart (eSignal)

U.S. Dollar Index (NYBOT:DXH14)

The Dollar has taken some serious heat over the past week and now finds itself grasping support around the previous swing low around 79.373. Some traders could very-well find value in the Dollar at these low prices with the market currently pressing into new contact lows. Near-term momentum in this market is negative; however, if there is a level of structural support that could put an end to that negative momentum and turn prices around, the 79.373 bottom would have to be recognized as a valid canidate. Along the same lines, the RSI appears to be diverging slightly with price down at these low levels, which could support an argument for a potetnial reversal off support down here. All things considered, buying dips into the previously mentioned support level at 79.373 is a counter-trend opportunity.

Traders should also be aware of the fact that there is not much technical support below 79.373 and there will likely be a good number of stops below this pivot, so any weakness below this pivot could quickly gain momentum. If the market is indeed going to gather itself here and make new moves higher, the intial target for price to overcome would be around yesterday’s structure at 79.648. Above here, the next structurally signfincant area of resistance can be seen around the 79.830 area on the chart. Given the extent of the recent sell-off, there does appear to be valid trading opportuntiies on both sides of the market with trend-following strategies favoring bearish position. The key to today’s session will likely be if price action can hold this 79.373 support pivot.

U.S. Dollar Index, 30-minute Bar Chart (eSignal) 

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