E-Mini S&P

We'll come to our  desks Tuesday morning looking for a potentially tradable head-fake in the E-Mini S&P.  The broad averages may not be collapsing, but it's been enjoyable nonetheless to see them floundering after January 3's media-pleasing Midway act.

The futures have been screwing the pooch for a week and a day, unable to rally but equally unable to sell off.  My immediate bias remains bearish nonetheless, and cautious in a bigger way, because of the futures' recent failure, by 1.75 points, to reach a modest rally target at 1278.75. The key number for Monday night and early Tuesday -- insignificant in any context larger than that -- is 1268.50, the Hidden Pivot midpoint of the pattern shown. A decisive penetration would portend more upside to 1279.00 -- a high that would be marginally above the one created last Thursday.  Since a stall at that height after an ostensible breakout could be the start of something nasty, I would strongly recommend trying to board the first southbound abc pattern thereafter on the very lesser charts.

Thursday's blithe stab missed a rally target at 1178.75 by all of 1.75 points, so it's a little odd that the futures spent all of the next day writhing like a wounded snake. It suggests the top could be in for a while unless buyers are back at 'em today with a push to new recovery highs.  In any event, I'll recommend bottom-fishing at 1261.50, stop 1260.75, if the corrective pattern plays out like the one shown in the chart. ______ UPDATE (10:07 a.m. ET):  The stop proved too tight when the futures dipped to 1259.00 overnight, causing a theoretical trading loss of about $40. This was a heads-up for the failed rally and subsequent weakness that was to follow the opening.

Discernible weakness is starting to creep in, since it wouldn't have taken much to push the futures yesterday to our 1278.75 rally target.  The actual high was 1277.00, and the failure of bulls to get there was reason enough for me to warn traders off bottom-fishing during the weekly tutorial session. Night owls could attempt it at 1264.00 nonetheless.  That's the 'd' target of the pattern shown, and it seem likely to be reached because of the way its sibling midpoint, 1268.00, was brutalized. ______ UPDATE (11:07 a.m. ET):  Swooning eight points in mere seconds, the futures bottomed in the pre-dawn at 1264.50 -- two ticks from our target and perhaps close enough that some of you will have gotten long for the 10-point rally that followed.  Set a break-even stop for whatever remains of your position, since the low looks shaky as of this moment.

Propelled by a short-squeeze that detonated on the opening, the futures were hell-bound for at least 1278.75 when the day session ended yesterday. Night owls should consider themselves fortunate if there's a pullback to around 1267.25.  That's the Hidden Pivot midpoint of the pattern shown, and it would be an opportune place to attempt bottom-fishing -- or better yet, to get on board the rally belatedly using camouflage.

Let's require a close above 1261.00 on the weekly chart before we infer that much higher highs may lie in store for the S&Ps. That's a Hidden Pivot midpoint, and it's tied to a 'D' target at 1356.00. The Dow would be trading around 12400 if the latter number is reached -- hardly a stretch in these crazy times. The move would be extraordinary if it occurs straightaway, but keep in mind that the A-B impulse leg that will have preceded it was itself extraordinary, climbing for ten weeks with barely a pause.

Yesterday's dog-and-pony show stalled a tad shy of our 1273.75 rally target, denying us the opportunity to short the relapse that followed. Today, I've prepared a chart intended to stretch your intermediate-term imagination.  It shows a rally pattern projecting to 1356.00, the equivalent of a 700-point upthrust in the Dow. I don't often pair such grotesquely elongated AB/CD segments in arriving at a price objective, but one could argue that the relentless but unspectacular rise of the market since September is exactly the kind of price action we should expect with processor-driven machines doing 90 percent of the trading.

In yet another burst of psychotic exuberance, the futures are up nearly eight points late Sunday night. We can still try shorting 1262.75 and/or 1265.00 with very tight stops, but these trades are now recommended for night owls only, since I'd rather not risk getting in the way of an opening-bell stampede if that is how Wall Street's crooks, clowns and child molesters intend to kick things off in 2011.  If both of those Hidden Pivots are swept aside, expect the silliness to continue to at least 1273.75 (also shortable, stop 1274.25), at which point the Dow Industrials will be up about 150 points.

I presented a long-term pattern here yesterday with a shortable pivot at 1262.75, but here's another at 1265.00 that I like just as much for its subtlety.  You can trade either with the tightest of stops, but between them there is probably enough stopping power to cap the upside for 2010.