Early Wednesday morning, we were leaning long on the S&P500 mini futures (ESH5), hitching our wagon to modestly hopeful technical indicators.

The futures didn’t fall out of bed in the overnight trading, and the ESH5 clawed back up to the 20/40-day moving average line from the previous day’s decline. No real strength, but enough to dull the fear and encourage the greed.

By the end of the day session Wednesday, the market had broken all of the support levels and closed near the low of the day. So much for hope.

The proximate cause of the carnage was a lukewarm statement from the Federal Reserve Open Market Committee. The futures were trading lower on relatively light volume until 2:00 pm when the FOMC statement was released; the market, parsing the semicolons at the speed of light, decided the news was bad and dumped everything.

The ESH5 ended the session at 1991.50, one tick above the low of the day and about 40 points below the previous close.

  • This market is very nervous, and ready to run from every wind that blows. We expect the volatility to continue.

What Happens Next?

The ESH5 has now totally lost the battle for the major support lines, and there is no immediate prospect of another attempt to reach the 2100 level, which would be a new all-time high.

Instead we are watching to see if the decline will continue toward the January low at 1970, a mere 20 points away.

The control zone on the ES today is 1981.25.  A breach of that zone could lead the futures down toward 1970-65 – the January low. Holding above it could result in a sideways movement between 1985 and 2025 for consolidation.

But for now, as long as ES stays under 2025 the odds will favor the selling side instead of the buyers. Only a move above 2028.50 could trigger a short squeeze and start a further advance.

The ultra-short-term has an oversold condition, so a small bounce is probably going to occur, but Hope has left the building, and we don’t think it will go very far. Shorting the bounce is the likely choice for most traders today.

For Jan. 29, 2015:

  • Major resistance lines:  2056.50-55.50, 2078-79.50, 2086.50-89
  • Major support lines:  1985-84.50, 1972-70, 1961-62, 1950-45, 1943.75-36

ESH5 Daily Chart: Jan. 28, 2015

dampier.1.29.15.png

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