Wednesday's 20.5 point decline on S&P 500 index futures (CME.SP) brought the index down a 'big' 1.5% into a technical support area at the 1338 level on 'extra high' trading volume. According to history, this combination of events may providing a bullish "tell" on an index that now stands down some 105 points, or -7.2%, from the May highs.
As shown on the chart below, which shows the S&P e-Mini contract (CME.ES), yesterday's decline closed in on the 1338 support level where we find the March 12 W-pattern neckline, the April 15 open gap, and the -2.25 Bollinger band all clustered within one point of each other as we put the day's price and volume characteristics to the test.
Q: How has CME.SP performed after printing a 'large' range down day that occurred on 'extra high' volume?
A: According to the 8 previous occurrences of this event, CME.SP has shown a very strong bullish edge that peaks eight trading days after the event. CME.SP rallies in 100% of the cases (8 of 8) by an average of 2.7% relative to the close on the event date, projecting an index target of 1371.87 by Monday, June 23, 2008.
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Mr. Jay Pasch is a private futures and equities trader based in Minnesota. He may hold positions in the instruments mentioned in his trading ideas.
