Early Monday trading has the S&P 500 futures contract (CME.SP) down another 13 points to 809, this after Friday's 20.25 point decline of 2.5% for a second consecutive trend-day decline at the 822.50 close. It's time to buy "on the line" but where is the line? The contract has been hashing around violently now for the past two weeks with very choppy and directionless trading, moving between support near the Nov. 24 'key reversal' gap and resistance offered by the Jan. 13, 2008 open gap at 869.
With the 869 over-head gap now filled, it's time for the Nov. 24 gap to fill completely at 791.50. We have four days now over the past two weeks with lows probing down into the 800 area and yet the 791.50 gap remains unfilled. If hard selling begins to set in this week on a violation of 800, consider camping near 791.50 on the long side after reviewing the statistics of SP's historical behavior after back-to-back trend-day declines, using the properties as queried below:
Q: Using all time-series data for the CME.SP contract, how has the contract performed after two consecutive down days that were trend-day declines with 'up' opens?
A: According to the 21 previous occurrences of this event, EventEdge indicates that CME.SP has shown a strong bullish edge that peaks 14 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Friday, Jan. 30) is Friday, Feb. 20. CME.SP rallies in 90% of the cases (19 of 21) by an average of 2.4% relative to the close on the event date. The average of the two declines is 0.4%. The overall return of the 21 cases is 2.1%, which, based on the close of CME.SP on the event date (822.5), provides a target price of 839.77.
News out of Washington, or lack thereof, as well as news out of the financial sector could be a strong factor in the contract's performance this week. Keep a tight rein on getting behind with this long-sided contra-trade idea.
To view and modify the event parameters defining this study, click here to launch the EventEdge® tool.
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.
