For traders who enjoy volatility, this week’s performance in the equity index futures markets has not disappointed. As we head into Friday’s regular session, it appears that we will see another day of wild price action.
When trading in any timeframe, there are two things relevant to consider - how a bar opens and how a bar closes. We often mark the yearly, monthly and daily open and close on our charts; and today, as these markets prepare to close for the week, we will most certainly pay attention to the weekly close and what that tells us.
When strong volatility hit the markets this past Monday, we think that certain desk managers were told they had until the end of the week to get their risk in order and that they should cut away some dead wood. Those who decided to wait until the last minute will be trimming their positions today, which will increase the likelihood of volatility.
Our Tuesday article on this site laid out some rules for trading volatility which continue to be relevant. We are continuing to keep it simple into this week’s close and will use the thirty-minute candlestick chart below, which covers the entire week of price action, to look for technical clues.
First, we will look at the downside. Currently, the S&P500 (ESH18) is breaking beneath the orange trend line, currently at 2589, which connects Tuesday’s low to yesterday’s low. Just below that trend line is a grey shaded region that highlights a range from yesterday’s 2577 low to Tuesday’s 2589 regular session low. We see this as the last area of support for bulls.
Below this, we would look for a retest of this week’s low of 2529, marked in blue, which was made during Tuesday’s overnight session. As the market moves, we may identify a higher low of interest that doesn’t quite reach that level, but essentially we want to be short until we see evidence of an intraday bottom near 2529 that will be confirmed by factors such as volume and time.
If these support levels hold, this market will have to deal with some resistance. To the upside, our first higher target offering minor resistance would be the purple trend line from the overnight session, currently at 2621. If bulls beat that, then they would next target the yellow trend line at 2644, which offers strong resistance.
If that area breaks, we would look for the green trend line to come into play at 2690, which is just above Thursday’s 2684 high. We see this as a major resistance level that bears must hold to keep their intermediate-term sell bias.
Today’s economic calendar is one of the quietest that we will ever see for a non-holiday and includes two just minor reports as follows.
- Wholesale Trade 10:00 AM ET
- Baker-Hughes Rig Count 1:00 PM ET