Market Summary:
Away from looking at the SPX for a moment, there was some very interesting action in the E-mini S&P 500 front month futures (ES1 Index) heading into the close of the cash session yesterday and in the overnight session. First, in the final minutes of the cash session there was a 17-handle rally from 5532 to 5549. The futures then proceeded to sell off 33 handles from 5549 to 5515 essentially testing support at the 5510/5520 range for the 8th time in the past three sessions. The contracts then rallied back 23 handles to hit an overnight high of 5538 and are currently on the fade at 5533. That said – aggressive, volatile and indecisive price action near all-time highs is negative.
The SPX cash index was volatile as well on an intra-day basis. There were multiple swings in both directions with magnitudes of anywhere from 25bps to 60bps. Ultimately the index traded most of the session above support at the 10dma (ref 5457) and closed near the high at 5477. While this is bullish on balance, I remain concerned with the amount of volatility we are seeing intra-day, below average volumes and historically weak overall breadth. My greatest concern is that my internal signals continue to fade and show a high probability of lower prices in the near term. Today will need to be a constructive day on all fronts for my model and view to change. Otherwise, I continue to expect the index to test support at 5400 in the near term with the additional downside risk of filling the 5375-5400 gap and potentially testing 5300.
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Trade Support:
5457: 10dma
5400: Low/Base of the June 12 Gap
5300: Downside Target based on a 100-point measured move and 38.2% Retracement
Trade Resistance:
5500: June 20 High
