Tuesday, July 6, 2010

Friday's low at 17.635 was the precise midpoint of the bearish pattern shown in the chart, so if it's breached we should infer that more downside to its 'd' sibling, 17.160, is coming. Alternatively, any rally that would turn the hourly chart bullish right now is too much to expect, so let's lower the bar to 18.815 -- precisely where the ten-minute chart would generate a promising, bullish impulse leg.

We continue to hold two August 98 puts for 1.06 and four July 96 puts for 0.70. Time decay is going to be start devouring our July puts this week, but we'll give them perhaps one more day, since the 95.42 downside target in the underlying vehicle is still valid, and because I utterly lack the imagination to see how the Diamonds and E-Minis could possibly rally before they reach my bearish targets.  Granted, tonight's obligatory, beginning-of-the-week short squeeze has reversed the Mini-S&P's miseries by 16 points -- the equivalent of a 130-point rally in the Dow -- but I have my doubts there will be many more bears left to squeeze by the time the opening bell sounds on Tuesday morning.

Bulls have yet to show any signs of life, and if they don't pick up the tempo this morning, we'll soon be seeing a test of a midpoint support at 1188.70. That Hidden Pivot is tied to an 1162.30 target, so a robust bounce is crucial to the short-term picture -- and perhaps the intermediate-term one as well.  Alternatively, 1222.90 is still the number to beat, since that's what it would take at a minimum to turn the lesser intraday charts bullish.  Night owls can look for signs of support at 1206.50 if 1210.10 is not exceeded to the upside first, but I wouldn't lean on it too hard for bottom-fishing, since it looks fragile. _______ UPDATE (11:27 a.m. EDT):  A wave of selling overnight has brought the futures down to within 80 cents of the 1188.70 support flagged above. It must hold or a further decline of $26 will ensue.

The futures have been down as much as nine points in subdued trading Monday evening, carving out a low beneath the would-be support of last Thursday's bottom, 1006.00. Still, sellers have shown themselves to be so gutless lately that we shouldn't count on any more of a reality check than our toothsome 992.50 target would seem to allow. The target has been advertised for long enough that I wouldn't suggest trying to bottom-fish with the usual nickel-and-dime stop-loss.  Instead, traders keen to catch a possible swing low should start looking for a camouflaged turn on the 3- or 5-minute chart once the futures reach 994.50 or so on the way down.  If sellers should surprise by overshooting 992.50 by more than a 1.25 points on first contact, take it as a sign that there is significant weakness remaining to be spent over the near term. _______ UPDATE (3:08 p.m. EDT):  We stood pat, enduring a short-squeeze that was equivalent to a DJIA thrust of about 280 points.  The broad averages have since plummeted back to unchanged, and now, assuming any shorts who had survived until yesterday have been gutted, disemboweled and purged, we can perhaps look forward to a resumption of the righteous and redemptive weakness inaugurated by the flash crash two months ago.

Fresh guidance for Tuesday will be out later this evening, presumably with no changes in the 992 Hidden Pivot target in the E-Mini S&Ps that has informed our bearish bias for the last week or so.   As of around 7:30 p.m. EDT, it looked as though DaBoyz were still trying to pick up the scent of easy prey. It's hard to imagine any news that would cause shorts to panic or even worry, but it should still be interesting to see whether their cool vanishes, as it so often does, just when they've got bulls on the run.