The June E-mini S&P 500 sold off into the close after
testing a key 50% level at 1105.75 and failing to take out the last main top at
1107.75. Todayâ€™s action clearly defined where the stops are likely hidden and
where a trade is likely to trigger a breakout to the upside.
Although the market did not make a closing price reversal
top, the pattern suggests that there may be another move to the downside before
the market attempts another breakout to the upside. Based on the short-term
range of 1041.25 to 1106.00, traders should look for a retracement back to
1073.75 to attract fresh buyers.
equity markets traded higher on Monday as investors went long on speculation
that government reports this week would show the global economic recovery is
back on track. Easing of tensions in Europe also
triggered a short-covering rally in the Euro which helped to lead to increased
demand for higher risk assets.
This week, U.S.
traders are expecting to see positive reports in Industrial Production and
factory output. Traders are expected to look at the long side of the market in
anticipation of strong economic results from both of these reports.
Technically, the main trend will turn up on a move through
1107.75. This will set up the market for a further acceleration to the upside
and a test of the .618 retracement level at 1122.00.
The June Euro surged early in the session on Monday as
upbeat feelings about the global recovery helped drive up demand for higher
risk assets. Todayâ€™s strong rally was a continuation of last weekâ€™s bottoming
action which was triggered by positive comments from Fed Chairman Ben Bernanke
and European Central Bank President Jean Claude Trichet.
Bernanke told the Senate last week that he believed that Europe has the money to protect its currency from
collapse. The market rallied on his comment because it meant that Europe would use all means to prevent sovereign debt
issues from escalating. Trichet said the ECB would not increase stimulus in the
economy. This meant the economy was strong enough to not require any additional
aid from the central bank. Both comments were supportive to the Euro.
Late in the session, the Euro broke from its high but still
managed to hold on to most of its gains. News of a downgrade of Greece
debt by Moodyâ€™s made weak longs nervous, triggering a profit-taking break. Many
traders feel that the break was unnecessary because the move by Moodyâ€™s was
based on old news. Investors also feel move optimistic about the Greeceâ€™s
Technically, two potentially bullish scenarios are taking
place. From a daily standpoint, the main trend is down, but the currency was
able to pierce through a retracement zone at 1.2164 to 1.2233. This move most
likely took out stops on the way up. The main trend will turn up on a move
through the last swing top at 1.2453.
A late session sell-off took the market back under the Fib
retracement level at 1.2233. This could be a sign of a short-term top, but that
cannot be determined unless the 50% level at 1.2164 is violated. If a new
short-term range forms between 1.1876 to 1.2297, then look for a break back to
1.2087. Bullish traders will try to form a secondary higher bottom at this
price. If it holds then look for the start of a major rally.
Last weekâ€™s closing price reversal bottom at 1.1876 was
confirmed this morning. Based on this pattern, watch for the start of a 2 to 3
week retracement with 1.2784 the next potential upside target.
In summary, the weekly chart is set up for a strong
retracement rally to 1.2784, provided the Euro holds a test of a minor
retracement level at 1.2087.
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