Market whipsaws provide opportunities

Good day! Tuesday was a nice day for day traders with strong intraday swings from morning lows to mid-day highs and back again into the close. When all was said and done, however, the session ended with the major U.S. indexes relatively unchanged.

The strongest action came in precious metals, particularly gold, which had been congesting over the past several weeks. The range broke sharply to the upside early in the session and it remained strong throughout the day with one of its strongest intraday moves of the year. The action came after Moody's downgraded Portugal’s debt and China raised its interest rates to stem inflationary pressures. Gold topped $1,450 an ounce with a high of $1,455.50 before closing at $1,452.60. Silver hit $39.245, its highest level since 1980, before closing at $39.15. The action also sent interest rates higher.

One of the few economic reports released this week was the Institute for Supply Management’s Services Index on Tuesday morning. It was expected to show continuing strength in manufacturing, but while the service industry did expand in March, the pace was slower than in February and the ISM's Non-Manufacturing Index fell from 59.7 to 57.3. Readings over 50 indicate expansion. The news did not have a negative impact upon price action. Instead, the indices broke sharply higher and continued to remain very strong throughout the morning, although the pace of the upside slowed dramatically by mid-day.

Dow Jones Industrial Average


By 13:30 ET a series of slightly higher highs that took place on the five- and 15-minute charts throughout the morning had culminated in the creation of a strong Momentum Reversal pattern for a short off the prior ES (S&P 500) highs and the NQ's (Nasdaq-100) 15 minute 200 simple moving average. The trigger coincided with the release of the FOMC Minutes, in which there was obvious dissent over inflationary pressures and concern by several members that rates should be raised prior to the end of 2011. While the shift in the momentum intraday had already favored a correction off highs for the afternoon, this news jump-started the selloff, which lasted into the closing bell.

The index futures did find support at the end of the day and rolled over afterhours, but the recovery was a slow one to begin with. It gained momentum after 5:00 a.m. ET on Wednesday and by 6:30 a.m. the three major index futures were already pushing through Tuesday's highs. This extreme extension on the 15 minute charts will mean a large gap open into Wednesday morning if it holds, which it looks like it will. It will also mean that the market will struggle to make further gains. Although slightly higher highs will be possible, this type of a move will typically create a choppier trading environment throughout the session unless another Momentum Reversal forms like it did on Tuesday.

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