Tuesday, June 7, 2016

S&P’s Swing Higher Despite Hangman’s Noose

The June E-mini S&P 500 Index future (ESM6) formed a series of ‘hanging men’ over the last 10 days that showed how frightened market participants have been.  In 4 out of 6 sessions coming into yesterday’s session, ESM6 fell from opening levels and recovered to finish the session not far from its opening level.  These so called ‘hanging men’ describe a market that is indecisive and because the trend has been bullish and this price action occurred near important highs, the implications suggested a bearish reverse might be forth coming as worried longs exited their positions. 

None of the ‘hanging men’ formed were confirmed by subsequent bearish price action as the series of such patterns grew.  Instead, yesterday appears to have marked a turn in market psychology as the two session trading activity ( June 3 and June 6) formed a ‘bullish engulfing’.  A stronger close today would signal a confirmation of this bullish pattern which could lead to significant and immediate gains. 

The Fed ‘black-out’ period in front of the June FOMC meeting has begun, so we will not hear from Fed officials at all about the prospects for forth coming monetary policy action.  In her speech yesterday (June 6th) at the World Affairs Council, Fed Chair Yellen made clear that the Fed had little insight to offer anyway and that the Fed, like market participants was anxious to find guidance in forthcoming economic data. 

Despite the lack of comforting words, and notwithstanding Friday’s extremely modest employment report showing, equities advanced yesterday to finish stronger.  In early trade today, those gains are added to across the globe.  It will be interesting to see if ESM6 can hold onto its gains and confirm the bullish implications of the earlier described ‘bullish engulfing’.  Otherwise, those ‘hanging men’ may come back to haunt us.  

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