E-Mini S&P

The fact that the futures made their engineered low on feeble volume Sunday night is about as surprising as the outcome of Greece's referendum. The selloff  was purely a reflex -- institutional traders bowing to the reality that the news, whatever it might portend, could not possibly be bullish. Even so, by recouping nearly the entire loss by day's end, traders may have convinced themselves, at least for the time being, that Greek's bankruptcy will be a non-event. Their devil-may-care attitude may come back to haunt them, however, since no one can predict how things will play out. For our part, rather than assuming that a felicitous state of tedium is about to return, we'll treat the stock market as though it's in a potentially very important topping process.  It's possible that breadth already has topped, by the way, within the very narrow time window that my colleague Peter Eliades had predicted. From a technical standpoint, the steep decline from the June 22 high of 2122.00 created a strong bearish impulse leg on the daily chart (see inset). Its 'D' target at 2023.75 will remain valid unless the current bounce exceeds the point 'C' high of the pattern, 2079.00. Yesterday's short squeeze came close, but we'll wait and see if it sputters out before we start treating the bearish target as a done deal. A fall of that magnitude would be equivalent to about 600 Dow points.  In the meantime, a short to at least 2041.25 (p), or perhaps p2=2022.50, looks more promising to me than any bull trade from these levels. If the futures rally to, or slightly above, 2079.00, look for an entry opportunity in the form of a minor, downtrending ABC pattern (i.e., a camouflage-style trade).  I like the odds because any feint to 2079.00 would be

Buyers seemed quite fatigued in holiday-shortened trading Friday, but even if they get second wind, the rally would likely be capped at 2081.50, a Hidden Pivot resistance that you could short with a stop-loss as tight as three ticks. If the futures sink, as seems more likely, look for the weakness to hit 2051.50, or perhaps 2042.50 if any lower. You can get short 'mechanically' if price action is similar to what I've drawn hypothetically. However, make sure you keep risk:reward in a 1:3 ratio, as our rules for this type of trade require.  Beware that news concerning the Greek referendum could cause index futures to turn especially volatile Sunday night when they resume trading. _______ UPDATE (7:05 p.m. EDT): DaBoyz have opened this vehicle with a volume-less shakedown equivalent to about 300 Dow points. Since the news from Greece could have surprised no one, we should assume as we did last week that the selloff is entirely reflexive -- knee-jerk behavior by institutional traders who must react in the same way they assume their colleagues and competitors will react. They are also attempting to exhaust sellers so that they can run the futures higher, unloading inventory when conditions are right later tonight or Monday morning. Keep in mind that even though the bounce from last Sunday night's heavily oversold lows went nowhere, the eventual bottom occurred just seven points beneath the one that had been recorded Sunday night.

Two days after Monday's avalanche, the obligatory bounce has yet to exceed a single 'external' peak on the hourly chart. That would require a print at 2083.50, but so far the futures have gone no higher than 2077.50, yesterday's peak. The holiday-shortened week is undoubtedly contributing to the stock market's lackluster performance, but it may also stem from a lack of buying interest that has been evident since February.  I doubt whether the mood will be any livelier as trading draws to a close ahead of the holiday, but there may be an opportunity for night owls to profit nonetheless.  We already know that stocks will make their high in the dead of night, somewhere between 4 a.m. and 6 a.m., so you should plan on getting short at either 2073.75 (p) or 2086.75 (p2) if one or the other is hit.  A stop-loss as tight as three ticks can be used, implying you'd need at least nine-ticks movement your way before taking a partial profit or implementing a trailing top. _______ UPDATE (10:34 a.m. EDT): The futures died between the two pivots given above, with two gratuitous thrusts six hours apart. The first peaked at 4:15 a.m. with a 2076.25 print; the second at 8:45 a.m. (45 minutes before the opening) at 2079.00. That should be it for the day, at least to the upside.

Although Monday's selloff generated an unimpressive bearish impulse leg on the daily chart, we are obliged to give an aging bull the benefit of the doubt until this feat has been surpassed with the creation of a strong impulse leg on the weekly chart. That hasn't happened since 2009, when the S&P futures were in the throes of a stunning 58% decline. Our Hidden Pivot rule is that, to create an impulse leg, the downtrend must exceed at least one 'internal' and one 'external' low without a visually significant upward correction. Applying that rule here, we would need to see an unpaused plunge beneath the 1958.50 low (#3 in the chart) to say with confidence that the bull is dead. More immediately, it would require only a breach of 2050.00 (#8) to suggest this speculatively.

The pattern shown has the kind of sinewy gracefulness that tends to produce accurate price targets. If so, the decisive breach of the 2053.75 midpoint pivot implies more downside to at least p2=2039.00, or perhaps to D=2024.50 if any lower.  Each of these Hidden Pivots is tradable in theory, meaning you could short p if a retracement rally to it meets our criteria for a 'mechanical' trade. Less labor-intensive would be bottom-fishing p2 or D with a tight stop-loss. How tight? I'd suggest five ticks, but you could step up position size if you are able to use 'camouflage' to get aboard.

Thursday's dirge overshot a minor downside target at 2093.25, hinting of more weakness to come.  If so, we should expect it to follow a high recorded sometime between 3 a.m. and 5 a.m. EDT tonight. Volume is practically nil at that hour, making it DaBoyz' favorite time for engineering swing tops and bottoms when no one is looking. The simplest, although not necessarily least risky, way to get short would be to offer a contract at 2097.00 (p2) , stop 2098.25.  This would effectively be a mechanical trade, albeit one against the trend, and you'd be playing for a relapse to the already-used D.  A camouflage trade would be the more conservative approach, since DaBoyz might be able to waft this hoax above p2 if there are no sellers present. _______ UPDATE (10:03 a.m.): The futures went flat at slightly higher levels overnight, necessitating a gratuitous swoon on the opening. DaBoyz have short-squeezed the futures nine points off the low so far, and bears are still caught in the ringer. But don't expect this ruse to go much higher, since, as usual, there is zero buying interest from ostensible bulls.

Bulls seem to have about as much enthusiasm for this market as, well, bears. A case of kick me, beat me, bore me to death while I stare at my monitor all day. We expected precious little of this vehicle yesterday -- only that it vault p2=2118.25 to signal more upside to a modest target at 2137.25 that has grown as stale as week-old bread. In retrospect, getting short wasn't exactly easy either. Only nimble day traders need apply, but please note that the 2137.25 rally objective remains valid. For all of you pivoteers, it is probably best approached via a 'mechanical' entry.

The bullish pattern shown implies a 45 point rally lies ahead, with a move precisely to 2161.00, the pattern's Hidden Pivot target. This outlook should not be regarded as a done deal, since the futures have yet to push decisively past the p2 pivot at 2127.00. But the fact that this resistance contained the last rally exactly, and that the p pivot at 2093.00 did the same the first time it was hit, strongly confirms that we are using the right pattern to come up with a potentially important top. To get long, I'd suggest using an ABC uptrend extrapolated from the 15-minute chart (or less) if and when the futures pull back from 2-3 points above 2127.00.

The pattern shown, with a Hidden Pivot rally target at 2137.25 that is still valid, is ancient history. However, this number is the only useful short-term target we've got, and just because it has taken two full weeks for the futures to get near it is no reason not to exploit it if possible. A mechanical 'buy' is the appropriate way to get aboard, implying a bid at 2118.25, stop 2112.25, once the futures have surpassed p2 by perhaps 6-8 points and lingered above it for 3-4 bars.