Today’s Economic News:
Mostly good out of Europe. We are a little concerned about the manufacturing PMI slip out of Germany. UK looks good. In the US today we get the ISM data. It is a holiday week this week in the USA. Thursday the market is closed and Wednesday abbreviated.
Quote of the Day:
No mind is thoroughly well-organized that is deficient in a sense of humor.
–Samuel Taylor Coleridge
Featured Breadth Chart of the Day:
Getting hard to feature a chart, we are still looking at some recovery, but it is weaker than our last rallies. The Fat-Lady indicator remains bearish, but she is starting to get a little green around her gills. Watch for a test of the 15DMA if we rally over the next couple of days which I think is seasonally bullish.
Comments and Levels for the Front ES (S&P500 – Emini futures) contract:
Short: 1620
Long: 1595
Everyone should have a line on their charts at 1595 now. We called that area significant pre-market on Friday and it was repeatedly tested, raising its significance even higher. We leave it as a level again today. 1625 is that head and shoulders target and we might just move up that 1620 target to coincide. The US likes to rally into holidays and these next two days seem ready to do that.
Moving on to the MiM:
First, let’s look at the latest version of the MiM that all of you meter readers will have sometime this week. It isn’t much different in looks except that we have added size and an SPX value to each of the snapshots. It does refresh faster and it has a much better organized backend.
I wrote quite a bit about being excited to see a quarter close/imbalance and wanted to watch the meter into the close. Quite a few wanted to join us in that and we thank you. For those really new, those numbers were big. On the buy side it was 1.9B and the close was 1.5B. But the imbalance never really got above my threshold of 66.6%.
I did receive some confirmation seeking emails that we never really got a signal, right? First, that statement scares me because there are no real signal rules, I am making up my rules based on observations and sharing them with you so you can confirm or be inspired or just go your own way.
In the disclosure of sharing, I want to make a couple of observations and then tell you how I traded on Friday.
1. The imbalance and quarter end numbers were big as predicted, they just did not materialize more on one side or the other.
2. The market was crazy up and down and up and down all day long in decent size swings, allowing both the buy and sell side to make trades in the market, hence balancing out before the close.
3. The market traded disappointed after the 3:45pm reveal as if it expected a huge buy side.
Remember, neither you nor I have traded through a closing quarter before so keep those notes and review them in September.
So on Friday, I am not sure if I broke my rules or not, but I did take a long trade for a few points. Here is what made me go in long. Shortly after 3:00pm the market sold down to 1603 on the ES yet we had a decent buy side showing. As the market recovered around THE 3:20pm area I like to trade in, I though maybe I was shut out for the day. Then the buy side really started coming in between 3:20 and 3:30. We were building up to a 1B and the trigger percentage was getting close and I hated the price action for long so I took the long. What I really like about the MiM is it makes me take trades that for years I would not take as price continuation is not my thing. So around 3:25 the long at 1605.75 looked good. That was a quick ride up and a f unny thing happened on the way to 1609.50, the buy side started to become satisfied very quickly. After a 2nd attempt to break 1609.50, I decided to take 1/2 and leave the other at the entry. As the buy side dwindled more I closed the trade at 1606.50.
You can see that after the reveal the market slid about 10 points. I did get some fan mail on Friday also thanking the MiM for keeping them out of the long side.
I was out of town all weekend, but I do want to roll up some stats on the MiM for our first month and I will be improving those stats for the second month. This morning I did do a quick review for those 66.6% threshold traders. Here is a really rough review. I like the 3:20PM entry area so I did a quick run through this AM trading just 3:20pm entry into the close.
If you ignored the 66.6% threshold and traded the direction of the meter without looking at % into the close, you would have taken all 20 trades and been up about 2.7points for the month. With the data above, 3:20 was showing green on the meter so you entered long at 3:20 and took a –6.48 loss on the close.
If, however, you only took trades that showed a bias above 66%, you would have had 10 signals for the month and taken home 20.9 points in profit.
So don’t feel bad if you sat on your hands on Friday, that would have worked out great if you traded that way the whole month.
Comments about the Front US Dollar DX futures contract:
Fiddling with the MiM comments and data has me behind so no comment. Go dollar.
Comments about TLT (Twenty year Bond ETF):
Watching for 111.60
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Breadth Charts in Full :
Zweig Breadth Thrust:
Cumulative Volume Index:
Number of NYSE issues trading ABOVE their 40 day moving average (40DPI):
New Highs / New Lows ratio chart :
Trenders :
Short Term Trender - McClellan Summation Index:
We have the chart continuing bearish:
Long Term Trender - Cumulative 4-week Highs – Lows (the fat lady):
There is a test a-coming.
Thank you for reading –
Marlin aka RedlionTrader @redliontrader