GAFNN.com Blog

As a 20 year trader I have picked up on patterns in the stock market and one such pattern which I fully subscribe to is that Fridays tend to reverse the dominant trend from the week.  With this holiday shortened week behind us and a 22 handle rally in the S&P 500 in just three trading days leads me to believe that today will produce a negative return for the index.

The basis for the theory is that I believe swing traders control the near term direction of stock prices.  Many in the swing trading community, including me, like to forecast a direction on Monday/Tuesday and exit those positions on Friday if stops have not been triggered.   So a week like the current week would say that long sided swing traders are still in there positions and will look to liquidate and take profits sometime around 10:30 am and start their weekend early.

Technically speaking the ES_H2 could use a nice pullback with a 70 RSI and 1315 looming as solid resistance.  As I write this, the index is on an early morning S3 pivot buy signal.  Identify the overhead resistance in your names and follow the direction of the big money.

Online Trading Tool: Pit IQ (Pit Intelligence) - Daily Online Trader Access to Trading Key Strategies, Setups & Levels live from the CME Trading Floor (Pits) in Chicago.

Monday 01/09/12 – Key Futures Trading Levels via CME Pit IQ

Equity Futures:

E-Mini S&P500 futures have been clearly hit by the panic which swept away equity markets. In particular, the market opened at 1,330 rose to 1,344 it then plunged to 1,313 on Wednesday and it closed to 1,295 on Friday.

The current volatility is 1.18% (18.7% in annual terms) and the TGARCH curve is now displaying a robust upward sloping curve which highlights that the down move of the price action was constant and far from being over.

E-Mini S&P500 futures moved higher probably pushed by the great depreciation of the US dollar against the euro, the pound starling and the Japanese yen. Specifically, the market opened at 1,314 remained stable around this area for a couple of days (1,313 and 1,316 have been the closing prices on Tuesday and Wednesday respectively) but the Index moved higher on Thursday with 1,326 points whilst 1,330 was the final closing price on Friday.

The actual volatility is 0.9% (14.2% in annual terms) and the TGARCH curve is now displaying a clear mean reversion movement which will tend to push the conditional variance towards its equilibrium point which is set around the 0.6% area (9.5% annualised).

The sideways movement E-Mini S&P futures went through the last week was efficiently captured by the analysis we posted one week ago. Nonetheless, the lateral movement has been followed by a drop but the magnitude of the plunge has not been as consistent as we thought.

The market opened at 1,325 it rallied to 1,338 on Wednesday, it moved even higher on Thursday (1,341) but 1,328 has been the settlement price on Friday.

The American Index experienced a massive drop at the beginning of the last week: from 1,319 on Saturday the 15^th to 1,301 on Monday the 18^th!!! However, it has be pointed out that E-Mini S&P500 futures managed to recover at a very fast pace because after hitting 1,328 point on Wednesday the price rallied to 1,330 on Thursday.



The actual volatility is around 0.78% - 0.8% (12.3% - 12.6% in annual terms) and the TGARCH plot is now showing a dropping curve which is an evident signal that the down movement is over and that the Index is ready to head north once again.

Specifically, the conditional variance should remain almost unchanged over the next trading days, although some shy short term augments in the 0.82% area (13% annualised) are not to exclude.

The E-Mini S&P500 futures went through a bearish week mostly influenced by the new bad news coming from Japan. In fact, the Index opened at 1,329 dropped at 1,328 and settled at 1,324 on Friday.    

The actual volatility is around 0.68% - 0.7% (10.7% - 11.1% annualised) but the TGARCH plot is really flat and in this case a short term explosion of the conditional variance could easily drag down futures prices.