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Friday, 21 October 2011

Opex Friday

We've been chopping round in a range since the high last Friday and momentum is building for a breakout in one direction or the other. As I mentioned yesterday the Euro summit this weekend may well be the trigger for that breakout, and if so then I'm leaning short, as I think the Germans will be most reluctant to commit any new money.

Short term ES is back near the top of the trading range and possible bullish rectangle at the time of writing, and I'm leaning against seeing a breakout today, so immediate upside looks limited. I'm watching the short term support trendline for this move up from yesterday's lows, and if that breaks down I'd expect at least a retest of the 1203.5 support level:
Looking at SPY this move up is looking like a retest of broken channel suport. A break back up through the trendline with confidence would look short term bullish:
Looking at related indices and instruments the Vix is looking toppy short term, though the pinocchios through short term resistance yesterday might be indicating an imminent break up:
As I mentioned yesterday the negative divergence between copper and equities here is huge, with copper bottoming close to the recent low yesterday. Copper looks as though it is forming a bear flag but within that flag looks likely to rise somewhat today:
EURUSD poked through the support trendline yesterday and then recovered. Overall this setup is looking bearish to me, at least to the extent of a likely retest of support in the 1.35 area:
30Yr Treasury futures (ZB) are not moving much at the moment but as long as the large rising channel holds, this looks bullish and therefore equity bearish:
In summary SPX is near the top of the recent range, and I'm not expecting a break up today so I'm leaning short. NDX has been underperforming SPX sharply in recent days which is also not looking bullish. At the time of writing ES is up almost 15 points from the close yesterday and I'd expect that to narrow somewhat before the open. If it doesn't narrow that would increase the probability of an unexpected trend day today, and I'd be watching the 1230 ES level for a possible breakout. The Gap Guy has this to say about opening gaps today: 'Fading gaps on Options Expiration Friday when below the 200 DMA and using an 'end of day' stop: DOWN gaps: 14/18 wins (78%) and 1.8 PF. UP gaps: 17/20 wins (85%) and 4.2 PF'.

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