E-minis on edge from overseas instability, speculation

Good day! We were looking at a very narrow bias heading into Thursday's session. The market had already fallen sharply off last week's highs and was beginning to reach an exhaustion point on the 60 minute charts. As discussed in yesterday's column, I was left with a focus upon daytrade action that would take advantage of a sideways type of market with the expectation that it would be difficult for the indices to make any substantially lower low by week's end. This exhaustion, however, was still not a reason to switch gears completely. The pace of the selloff into daily support levels meant that it would also be unlikely that a rapid recovery would set in.

Dow Jones Industrial Average (Figure 1)

Although I began to look for the start of a correction off lows heading into Thursday, the downtrend move did not relinquish control quickly. Slower upside afterhours on Wednesday left the index futures facing a strong short setup on the 15 minute charts. This triggered around midnight and gained momentum just a couple of hours later. This early-morning drop took the index futures to slightly lower lows compared to Wednesday.

Despite the strong selloff, the regular trading session began relatively unchanged. This was the result of a recovery off premarket lows that included a strong PhoenixTM buy strategy. This setup can be viewed on the 15 minute chart of the Nasdaq. The rally that followed took the indices back into the zone of previous highs, which hit around 10:30 a.m. ET before selling resumed. A third low was hit at approximately 14:00 ET on Thursday.

S&P 500 (Figure 2)


This series of slightly lower lows in the indices, particularly the S&P 500 and Dow Jones Ind. Average, is a part of a pattern I call a "Momentum Reversal" because it involves the shift the momentum of the buying or selling. The shift was not enough to propel the indices higher, but it was enough to confirm that the market was dealing with corrective action off the Nasdaq's 50-day moving average. The indices easily held the lows and made their way back to the upper end of the 60-minute trend channel. The market is still favoring further corrective action at this zone of daily support.

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