Thursday, June 2, 2016

ESM6 – June Emini Looking Like Lynching Town

From a candlestick point of view, price action in the June E-mini future contract (ESM6) over the last few sessions appears rather distinct.  While the contract has had some decent ranges, the contract has not ended very far by sessions end from where it finished last week.  On Tuesday, Wednesday and thus far today (Thursday), ESM6 fell intra-session and recovered lost ground, either to finish not much lower (Tuesday), or as did yesterday, finish higher. 

These sessions have formed (for today will form if prices remain near current levels into close) bearish ‘hanging man’ patterns.  Each session is a hanging man and is called such because it looks like legs dangling lower and is thus seen as ominous.  Of course, the hanging man needs to be seen near the higher end of a range for it to have importance.  This is the case as the S&P500 Index is at/near 6 month highs and only 1.6% below its record high. 

Instructionally, the hanging man informs us that the bullish contingency has not shown enough willingness to press their case.  Despite having prices near recent highs, a situation where we may expect some shorts to become discouraged if prices continue higher, longs are unable to marshal enough resources or willingness to push prices higher.  Instead, the difference between the opening and closing levels remain modest, indicating indecision.  We of course charge that indecision to the bullish contingent as they are said to be ‘in control of the market’. 

Some might mistakenly concentrate on the fact that shorts were unable to keep prices lower in successive intra-session sell-offs, but we do not put the onus on the bearish contingency until they are ‘in control’.  That may happen soon unless the bullish contingent can move prices materially higher.  If that does not happen, longs are likely to become discouraged and shorts will at the same time become emboldened.  Clearly a settle above 2110 would put some bearish concerns to rest and encourage new rounds of bullish buying.  Otherwise, bullish participants are advised to keep close watch as price action may swing lower fast if the music stops and there are not enough chairs. 

As I finish this note, ESM6 trades to 2099.50, which if it settles here or higher would not only create a bearish hanging man pattern, but also would be the highest settle since July 2015 for EDM6 (which of course was not the lead future contract back then).  I would not be terribly impressed with a new high settle, but would rather suggest concentrating on the aforementioned inability to make meaningful bullish progress over the last few sessions. 

Tomorrow we see the May employment report and on Monday, Fed Chair Yellen will likely advise as to the prospects for a mid-year policy response.  There is reason to suspect that either of these events could materially change the prospects for the S&P 500 Index.   

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