E-mini stock index futures continue to take beating

Good day! On Tuesday the market managed to recover a large portion of the losses from a gap lower in the indices that left the Dow Jones Industrial Average down nearly 300 points at the opening bell. The market's increased pace to the downside was the result of several factors. The market was already favoring corrective move lower out of the congestion zone that had taken place along the 50 day moving average, but the pace was not expected to be a strong one.

The correction accelerated, however, following an 8.9 earthquake off the coast of Japan that sent the island nation into a tailspin as it was left to deal with the aftermath of the quake and subsequent tsunamis and aftershocks. The most perilous is the ongoing crisis at the Fukushima Daiichi nuclear power plant. Several explosions rocked the facility in the days following the quake and radiation levels have hindered workers trying to contain the damage at the site. It was this particular catastrophe that led Wednesday's market.

Dow Jones Industrial Average (Figure 1)

The index futures had closed near intraday highs on Tuesday, albeit still in negative territory for the day. Throughout that session, the climb off morning lows had been a choppy one with a lot of overlap in price from one bar to the next on the 5 and 15 minute time frames. As I mentioned in yesterday's column, this, combined with strong resistance levels intraday into the final 30 minutes of trade on Tuesday, allowed the index futures to fall quickly off the intraday highs in afterhours trade.

That weakness we saw underlying Tuesday's trade followed through into the early morning hours on Wednesday. Although the index futures retested the zone of Tuesday's highs afterhours, the momentum was beginning to shift. The index futures pulled back off the 15 minute 200 period moving average a second time at 21:00 ET into midnight. This was followed by a substantially more gradual pull higher into Wednesday morning. This slower trend contained three wave of buying into 4:00 a.m. ET, which exhausted the trend move, and it also held the 15 minute 200 sma once again. By 5:00 a.m. ET this larger triangle formation that can been seen on the 15 minute charts had triggered a short setup.

S&P 500 (Figure 2)

The pace of Wednesday's selloff increased after U.S. Energy Secretary Steven Chu stated that he believed a partial meltdown did occur in Japan and reported to the House Energy & Commerce subcommittee that the situation was more serious that the worst nuclear disaster in American history at Pennsylvania's Three Mile Island in 1979 that had involved a partial core meltdown. Infant mortality spiked in area in the immediate years following the partial meltdown in PA, and although the wildlife was also suspected of being highly affected, the official documentation was inconclusive.

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