The market has turned bullish here, there is no question now. Today’s strength has confirmed the validity of the recent rally.
This morning, open interest confirmed that this rally is not only being fueled by short liquidation, but also a combination of new trade shorts and spec longs. The combination of liquidation and new positions nearly canceled each other out as the market only saw a small rise in open interest.
While I am a little cautious up here at these levels, I believe the market still has some room on the upside. The interest in the market has increased as we have turned up. This is shown by our rise in daily volume over the last three days.
Approximate volumes were as follows 7,500 on Thursday, 12,000 on Friday and today’s estimate of 18,500. What this tells us is that if the market can sustain these levels, we should see higher prices. How high I’m not sure but producers are certainly not taking a stand at these levels as the trade once again was only seen as a light scale up seller and only at prices above 5550 today.
So with increasing spec interest in this markets rally, I believe that a test of today’s high is not far off in the future. If the market can sustain these levels, above 5400, I will be looking at open interest, as one sign, to give us some indication of where we can go from here. Higher prices will bring in more spec longs and some trade shorts, if our open interest starts to approach 180,000 to 185,000 and we start to see some much heavier producer selling, as the second sign, then I will feel as if we could be approaching a high in the market.
Right now though, our most important number to keep in mind is the 100-day moving average, which was 5640 today. The market saw some resistance at this price and could only put in a high of 5635 today, before backing off and settling at 5595.
Action on the open was mixed as we saw a combination of spec buying and selling. The locals were over loaded on the long side this morning as most came in with longs from Friday. They quickly became sellers trying to liquidate their longs and get short as the market was unable to sustain Friday’s settlement. The market quickly fell to 5475 as locals and some small spec liquidation was seen. The market could go no lower as spec fund buying was evident after the pull back in prices.
Continued light buying in the middle of the day with the locals on the short side was too much for the market and the ensuing rally was caused by locals covering shorts and trying to get long while the specs continued their buying. The market ran into more short covering stops above 5610 and that was enough to carry us to 5635, where resistance was found just below the 100-day moving average.
I fully expect the market to make a run at today’s high, but some consolidation may be necessary first and we may not revisit that high right away. Don’t be surprised if the market opens lower tomorrow or even trades sideways most of the week. I would not lose faith in this rally unless we settle below 5385. We have a trend reversal point of 5330 and only a settlement below that number would confirm a test of the recent low of 5120.
Look for:
Support at 5550-5570, 5495-5510, 5426-5400, 5380, 5325-5305, 5280, 5210-5188, 5120 and 5080.
Resistance: 5600-5625, 5650-5670, 5750.
Moving Averages
December (54.19)
March (57.63)
9 Day
53.64
56.60
Month
Volatility
18 Day
53.46
56.34
Sept.
24.50%
40 Day
55.32
58.05
Dec.
26.25%
100 Day
56.40
58.92
March
25.00%
Futures
Calls
Puts
May
23.75%
18,000
6,000
5,000
July
22.50%
