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Welcome all Safety in the Market traders to this month’s dedicated newsletter, the first for 2011. I would like to wish all our traders Happy New Year. Of course being a Queenslander, I am very much aware of the flooding disaster going on right now. While my family and I are ok, many others have suffered. It has been awesome to see the generosity of other Australians who have donated to help the flood cause. I hope that all our Safety in Market clients and their families who may be affected by the flooding experience a speedy recovery.
I left you last year pondering the probability of a third leg up on the SPI200. My belief ‘time’ wise, was that early to mid-January had some potential for a top. As it turned out the U.S. equities markets delivered with the usual ‘New Year’ rally, however our SPI200 faltered on the seasonal date in December. With this in mind, I like the ‘position’ of the U.S. markets a little better than the Australian market right now. This month I’m going to share with you some work on the S&P500 E-mini (ES-SpotV). Let’s jump straight into a chart. Take a moment to look over it yourself first and see if you can determine what we will discuss.
Chart 1 – S&P500 E-mini (ES-SpotV) Monthly Bar Chart, Price Work
click chart to enlarge
Looking at the chart we have two forms of price forecasting work applied. Firstly we have the ‘Ranges Resistance’ card for the 11 October 2007 (1,586.75) to 6 March 2009 (665.75) bear market. If you look closely you will see that the 50% level proved as resistance in June, July and August. Then during September the market lurched forward again and now we see price pushing against the 66.6% level, which is 1,279.1.
The second part gets me more interested as it involves a 50% pressure point. Take a look at the range from the 6 March 2009 (665.75) low to the 26 April 2010 (1216.75) high. If we add 50% of this range to the 6 July 2010 (1002.75) low, then we get a 50% Danger Zone of 1,278.25. The current high (at the time of writing, 12 January) is on 6 January 2011 at 1,277 neat. Some of you might find this chart a little confusing, others straightforward. You have to work to get to a point where you find a chart like this, ‘bread & butter’ stuff.
We may see this top broken as there are a couple of other pressure dates later in January. Whether or not the market can hold about this 50% level of 1,278.5 for long will be a tell-tale sign. We need to watch potentially for a false break of this 6 January high. A genuine break is another story again and is positive for the bulls.
While the U.S. markets have moved well beyond their April highs, the SPI200 is still well below the 15 April 2010 high (5,036) which was my forecast high in 2010. We here in Oz have certainly lagged behind the U.S. in terms of our percentage recovery of the bear market. A faltering U.S. market would potentially have strong negative effects on our Aussie market and the April 2010 top might prove to be safe yet. I’ll do my best to follow this all up next month.
Until next month...
Noel Campbell
Professional Derivatives Trader
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