May 27, 2010
Despite the market clearly being in a downtrend there was a short term bottom put in place on Tuesday. The large gap down opening followed by a day long rally often indicates a short term bottom. The odds of this being a bottom were increased by the trade below the previous swing low at 1056 on ESM10, and the close back above. Predictably the market had a minor retracement on Wednesday but it collected its buying forces today to power higher and closed at 1101. Thursday’s rally was important because the market had run into resistance at 1089 on three different days. However, despite the 60+ handle rally, the overall market is still in a down trend.
Now that the oversold condition has been relieved on the daily charts the key question begins to become was the Tuesday bottom more than just a short term bottom. This is often very difficult to predict right away. There was good volume on Tuesday, but it was not climactic volume similar to what we often see at intermediate bottoms. Also, the rally on Thursday was on only decent volume, not on great volume. This could have been a short covering rally prior to a long holiday weekend that happens to coincide with month end also. Friday’s volume is likely to be moderate as many traders will get an early start on their beach vacations and the traditional start of summer. We expect resistance to come into the market between here and 1115 and at least a minor pullback to occur.
We will continue to monitor price and volume action and relay comments to you.
Darrell Jones
Past performance not indicative of future results. Futures trading involves substantial financial risk. Please consult your personal financial advisor before using this information for your own trading purposes.
