Monday, June 13, 2011

Technically speaking, nothing meaningful has happened since the futures rallied on May 17 from the exact midpoint support of a big pattern that has corrected early May's record high.  The fact that the rebound occurred from exactly where it "should have" is bullish, but Gold has made little headway since.  Most immediately, Friday's steep selloff has stalled within three ticks of the midpoint support shown. While neither  bullish nor bearish, this price action implies that a decisive breach of the 1528.60 pivot would likely send the futures down to at least 1519.20, its 'D' sibling.  You can bottom-fish there with a stop-loss as tight as four ticks, but camouflage is a better way to approach the trade, since the target is closely coincident with a key low recorded on June 2.

Although Monday's tout for the E-Mini S&Ps implies a fall of about 200 points in the Dow, the DJIA's chart itself suggests it could be significantly worse. I've flagged a pattern that projects to at least 11633, exactly 319 points below Friday's settlement price.  The midpoint support here lies at 11908, so if the Indoos open a mere 44 points lower on Monday, they will be on thin ice, vulnerable to a further fall of 275 points. Please note that the pattern itself is a good one, with single-bar price points at all three coordinates and a point 'B' that has properly exceeded an important prior low. Those factors lend a high degree of confidence to the target itself.

The broad averages gave it all back and then some on Friday, justifying our skepticism toward the previous day's surge.  Now, the E-Mini S&Ps looked headed down to at least 1251.50, the Hidden Pivot target of the pattern shown. However, this number is intended as merely a minimum downside objective for Monday, and if it should fail easily, we must heed the possibility that the selling is about to turn into an avalanche.

In Monday's touts for the Dow Industrials and E-Mini S&Ps, I've provided some precise reference points so that we can know whether mere weakness might be turning into a cascade.  Charts are included with both, so check them out if you want to be prepared for the worst.