E-Mini S&P

Yesterday's impressive short-squeeze was instructive, since it made clear that trying to amass a short position as the futures work their way lower will not work. Any bear who laid out stock between last Wednesday and Monday was in the comfort zone when trading began on Tuesday. The mild uptrend that ended the day may have made a few of them nervous, but not sufficiently so to cause them to bolt for the exits. Wednesday's rally was another matter, however. It built slowly overnight, taunting bears to say "Uncle!" with a weak hammerlock that initially might have seemed escapable. Then, on the opening bell, with little warning, the futures took off like the proverbial bat out of hell. By mid-morning they were up the equivalent of  240 Dow points, snatching back gains that had taken four days to accumulate in just a few hours. Shorts were still on the ropes at the close, waiting for the coup de grace either Wednesday night or Thursday morning. We should expect a mop-up operation in the days ahead that consists of feints higher to take out shorts from late May and early June that were initiated presciently before the recent downtrend began in earnest. The foregoing should serve to remind us that even for the most diligent permabear, there will be no "shorting the top."  Perhaps it will come on unsettling news in the dead of night, or on a ferocious Friday afternoon spike that causes even the boldest bears to cower in fear. Or maybe stocks will go into a freefall in the middle of a quiet day, plummeting 500 points on thin volume. What a short squeeze that would set up! It would impale any trader lucky enough to have been short in the first place.  If we are the lucky

Yet another day of constipated price action, this one characterized by meaningless spasms with an intraday range of about 16 points. It has been entirely predictable, even as the futures have worked their way lower, that the average session would consist of selling that petered out quickly, offset by a weak rally that went nowhere. Come Wednesday, I'll stick with the 2054.25 target proffered here yesterday. A lesser trend evident at day's end was bullishly impulsive and headed in the opposite direction, but I'm more enticed by the prospect of shorting p=2075.75 than in trading the upside. A three-tick stop-loss would be appropriate.

How do you short a market that can't seem to mount a sustained rally? One answer is to get long a tick or two ahead of the feeble rallies that are occurring, and to use any profits thereof to cushion shorts from minor corrective peaks. The viability of this strategy is corroborated by the chart shown. Notice that the only bounce on Friday worthy of the name came from within two ticks of a 2075.25 Hidden Pivot target. This suggests that this vehicle is moving obediently and precisely to our numbers, at least for the time being. If this observation is to hold, the next tradable bounce will come from within a tick or two of 2063.50, a Hidden Pivot that is the 'D' target of the abc pattern I've labeled in red. Incidentally, I've heard from one subscriber who said he did not want to wait for the perfect moment to get short. He laid out E-Mini S&P contracts at  2089.75 and 2086.25 yesterday with the goal of 'swinging for the fences'. Of course, if the stock market is about to go to hell, it will not much matter whether one got short at a 'good' price. That said, our game plan will be to continue to look for trades in places where risk can be held to a practical minimum. _______ UPDATE (9:47 a.m. EDT): The futures crushed the support before the opening, falling to a low of 2061.00. This hinted that the bounce that followed was destined to go nowhere. A mechanical short from p=2076.00, stop 2083.00, would be targeted on 2054.25. On the hourly chart. Here's the pattern:  A=2113.25 on 6/3, at 11 a.m.; B=2075.75 on 6/5, at 10:00 a.m.

The choppy tediousness of the stock market from day to day, as well as its inability to simply fall, has masked weakness that feels like it could precipitate out at any moment. It would take but a mild selloff of just 14 points from Friday's settlement price to turn the daily chart bearishly impulsive. The last time that happened was in early May, and it led to a sharp reversal to new record highs. The pattern could repeat, but we should be on our guard against a possible surprise -- and I don't mean a good surprise. In the meantime, I've all but given up on shorting a major Hidden Pivot target I'd flagged a while back at 2138.00, having passed up a chance to do so three weeks ago at 2134.00 that may have been the best opportunity we'll get. Still, if the S&Ps have been in a topping process for the last several months, it would be the most boring bull market top that I can recall -- a series of marginally higher peaks rather than the spectacular blowoff one might expect as a finale to the most powerful bull market in U.S. history. In any event, we should keep a close eye on this decline, especially if it generates a follow-through leg similar to the hypothetical one I've drawn. Price action at the Hidden Pivot labeled 'p' could provide telling clues about the health, or lack thereof, of this aging bull market.

It's taken a whole week to get there, but it looks like the futures will finally hit a 2088.25 target that has seemed all but ordained from the outset. Stocks have routinely been feinting lower on the openings, then spending the remainder of the day recouping lost ground on gossamer volume. Yesterday, however, the familiar second act of this tedious dog-and-pony show never happened. Instead, the futures relapsed and stayed down until the final seconds of the day, when a weak short squeeze goosed them eight points higher to facilitate distribution during the night session. This sort of weakness begs to be shorted, but even if you manage that feat, the futures would be a scalp-buy at 2088.25. If that Hidden Pivot is hit in the first 90 minutes, however, it would give the futures a chance to bounce and then relapse again into a dive even nastier than Thursday's.

Asphyxiating tedium has made this a poor choice of trading vehicles for the time being. We spotted an entry opportunity during yesterday's tutorial session with the potential to produce a gain of $500 per contract if the futures rallied just ten points in the remaining four hours of the session.  That would have equaled the impulsive rally that unfolded in the first hour. Lo, the futures tripped our entry signal and were able to gain only four points from that point forward. The implication is that even though we picked a winning trade, and even if we had had the patience to monitor it closely for the rest of the day, we'd have come away with a profit of just $162 per contract.  The 2122.50 target we used is still valid (see inset), but you'll have to decide for yourself whether it's worth pulling an all-nighter to see it through.  A pullback to p=2116.00 after the futures have rallied into the range to 2117.00-2117.75 would offer an opportunity to get long 'mechanically,' perhaps using an electronic platform to do the hard work after you've gone to bed.

Two hours counts as a long-term trend these days, and woe to the trader who takes a position home overnight with expectations of exiting at higher, or lower, prices.  He's liable to see both, but in such rapid succession that a profitable exit will be most difficult to achieve.  Be that as it may, the futures were impulsively bullish at day's end, subject to the buoyant force of the pattern shown.  A 2110.75 print would trip a conventional 'buy' signal, and although we rarely use such signals any more, this one would likely get you safe passage to p=2115.75, provided the signal is flashed in the middle of the U.S. night. Keep in mind that we still have a 2138.00 target above that is worth shorting aggressively, assuming it's ever reached. _______ UPDATE (9:32 a.m. EDT): The trade worked more or less as promised, tripping the 2110.75 entry signal at around 2:05 a.m., and finally reaching the 2115.75 target five-and-a-half hours later.  This was a tedious slog just to book a $250 profit per contract, but it could have been automated on most trading platforms to be executed while you slept.  The overnight high fell short of a not-very-ambitious p2 at 2120.75 -- about par for a stock market that, even trading at record highs, still looks like hell.  Incidentally, if you bought four contracts or a multiple thereof initially, you would still be long half the position with an adjusted cost basis of 2105.75 and a third contract offered at p2, o-c-o with an impulsive stop on the '5'.

A swoon could hit 2097.25, or even 2088.25 before finding support. It's tempting nevertheless to give bulls the benefit of the doubt here, since they seem to be having a slightly easier time of it on days like yesterday, when price action is just slop. On balance, I'll recommend bottom-fishing at 2097.25 with a stop-loss as tight as three ticks. If it's hit, expect more downside to at least 2088.25, a Hidden Pivot that could also be bottom-fished with an extremely tight stop. If you're inclined to trade these targets aggressively, the 10-minute chart is the place to look  for shorts. At the moment, here is the relevant pattern from Monday:  a=2116.75 at 3:10 p.m. EDT; b=2108.75; c=2112.00?

I'd intended to take a short position home over the weekend, but initiating it on such weakness as we saw on Friday is courting risk.  I'd much prefer to get short on strength, especially on a rally to the 2138.00 target that has informed our outlook in recent weeks. However, we'll put it aside for the moment, since it appears more likely that the futures will fall to 2097.25 first, or 2088.25 if any lower. Either of these Hidden Pivot supports can be bottom-fished with a stop-loss as tight as three ticks. If the trade works, it will provide an additional cushion against any shorting we attempt on the next rally. Alternatively, a close above 2116.50 on Monday, or a decisive push above it intraday, would negate not only the 2088.25 downside target, but also my bearish outlook for the near term.  A 2130.50 Hidden Pivot resistance would become my minimum objective at that point.