Wednesday, June 29, 2016

S&P 500 E-mini Could do the Unthinkable...

It appears rather a long-shot, but clearly not out of the realm of possibility.  The S&P E-mini could rebuff the massive decline which followed the UK vote to leave the Euro.  ESU6 (S&P 500 Index E-mini future) advances for a second session today following the biggest two session rout since August 24th when markets were reacting to the China Yuan devaluation.

The 131 point two session drop of Friday opening to Monday close shaved over 6% from the Friday opening level of the E-mini.  It has since recovered more than 2% over yesterday and thus far today (current read 2049).  It would need to advance beyond 2067 today if it is to soundly discount the bearish implications of the outsized decline on Friday. 

If ESU6 were to settle today above 2067, it would indicate that the power behind the bullish contingency still reigned and that new highs are likely soon forthcoming.  The decline on Friday was a very dramatic sell-off at historic high levels and is currently considered the primary force for market direction and psychology.  That however needs to stand the test of time.

The first and most important time element is the three sessions following the Friday sell-off.  For us to rely on the bearish implications of that bearish ‘engulfing’ of Thursday/Friday, which was in fact confirmed by the weaker price action on Monday, we need to see the bearish contingency willing to sell into strength.  The bearish contingent would show that resolve by preventing ESU6 from recovering (at settlement today) more than half of Friday’s opening to closing level decline. 

The advance today would need to be roughly 2% in E-mini for the September futures contract to vault above the ‘mid’ of Friday’s session.  To do that would discount the bearish implications of the decline, set bearish positioned traders on their heels and ready the market for new historic highs.  Conversely, should the 2067 level hold today, despite the somewhat striking recovery of the last two sessions, we would have to concede that the bearish contingency still holds sway, any advance would be hard fought and further and sharp declines are of greater concern.