Monday, March 8, 2010

The only major stock index to surpass its January 2010 high thus far is the Russell 2000, whose e-mini futures contract rivals that of the Dow Industrial Average in liquidity.  The Russell has been on a tear for exactly a month, but hidden pivot analysis tells us that this move might almost be at an end: two daily patterns give us nearly convergent D targets at 668.90 and 670.30, just above the current price.

The futures have eaten through a midpoint resistance at 80.90, suggesting buyers have appetite enough for more upside to as high as 84.74.  Because this vehicle requires stop-losses of at least 21 cents for anyone trying to enter at Hidden Pivot swing points, I don't feature it much as a trading vehicle.  However, with nearly $3 more of upside immediately in prospect,  "camouflaged" opportunities to get long should abound, especially on retracements to midpoints that the rally has turned from resistance into support (i.e., 80.90, for one).

I won't reiterate the crucial importance of the Hidden Pivot resistance at 1144.50 other than to note that a decisive move above it would imply the futures are enroute to 1244.50 -- exactly $100 higher.  They've  slightly surpassed the pivot intraday, but we should like to see a two-day close above it, or an intraday move touching, say, 1151.00, before we infer that the bull has broken loose from his pen. More immediately, we can gauge the strength of buying by monitoring resistance at 1142.80, the midpoint pivot of the pattern shown. If it is bull-dozed, let us take encouragement, since that would imply more upside over the near term to 1159.60, the 'D' target with which it is associated.

The futures exceeded a high-confidence rally target at 1137.25 that we've been using for a while -- but not by enough to stop us out of the short I'd advised from that price.  (The stop-loss suggested was at 1139.25; the actual high was 1138.75.)  The position is holding so far Sunday night, but we'll monitor it closely and stick with the original stop, since it is always more dangerous to initiate a trade on the close -- especially on a Friday -- than earlier in the day.  A move above the target would ordinarily be warning of more strength to come.  In this instance, however, any such strength could be short-lived, since its sole source would be short-covering resulting from the relatively shallow pullback from Friday's high. If the little sonofabitch should break loose, though, brace for more upside to at least 1156.50.  That's a Hidden Pivot that should be shorted aggressively and with a stop-loss as tight as 1158.25.