The Weekly Expected Move (“WEM”) high on the 24-hour S&P 500 index futures is roughly 4250. There is a 70% statistical probability that the market will move to or below that level by tomorrow’s close. The futures are marginally above the WEM level at this writing. We see a number of the 11 sector funds at their expected move highs as well. Volume has been light on the recovery in the past few sessions, undercutting its credibility. Momentum and breadth continue to wain – even in the wake of a nice gain for both the S&P 500 and NASDAQ 100.
The WEMs are “where risk goes to die,” as Don Kaufman over at Theotrade.com often says. It is where buyers and sellers meet. When the levels are exceeded (30% of cases), the gains (or losses) can accelerate as market makers are forced to neutralize their risk. I don’t expect that to happen here – but let’s keep it on the table as a possibility.
More likely, we will continue to see the 4250 level act as a magnet through tomorrow’s close. The S&P 500 index might try to best its all-time high at 4258.25 for the order flow, if nothing else. But I would consider shorting the index on a pivot lower from that or any higher level and covering at least back at the WEM at 4250.
My overall bias remains neutral to slightly bearish. The Navigator swing strategy is on the verge of a buy signal, but it has not triggered thus far. There is a visible reversal pattern on the two-hour chart to move higher if the pattern takes.
Today’s Plan
If it were not for the WEM high looming in our midst, I would be advising that we have a strong gap higher, confirming buyers are still in control. Gap rules are in play, as is the potential for a new all-time high in the regular day session. Recall that the current all-time high occurred in a Globex session. Still, probabilities favor a move back below the WEM 4250 level by tomorrow’s close. Carry that forward in your narrative.
Key levels are important today as, once again, we have a confluence of market profile nuances. On the upside, we have the overnight high at 4254.50 and the all-time high at 4258.25. We have the 4250 level below that, which serves as both a half-roundie and the WEM high. Then we have 4248.25, which has doubled as a high in both a Globex and regular session. We have yesterday’s high at 4246.25. Then we have the prominent TPO/POC at 4239. Then we have a triple hit at 4229.75 as the VPOC from 6/22, yesterday’s low, and the Globex low that preceded yesterday.
The weak structure from 6/21 and 6/22 remains a carry forward but tends to be more important when encountered in a rally. Here, we would only encounter the weak structure in a decline.
With overnight inventory 100% long, the true gap higher has potential for an early fade. Whether we get it and how much tells us a lot about the strength of the market.
Should there be a full gap fill, remember that the prominent TPO/ POC at 4239 has higher odds of being tested. Leaving it untested today is a sign of strength and should be carried forward.
Only acceptance below 4229.75 has any potential to change the tone. As always, watch internals for confirmation of breakouts, trends, and strength.
Good trading today!
A.F. Thornton