My recent posts focused on the YM (E-Mini Future for the Dow Jones). Still, for the remainder of this month & year, it’s probably more useful to consider the ES (E-Mini Future for the S&P500) and even the NQ (E-Mini Future for the Nasdaq) for a view of where the market is going next. The reason is that with only 30 stocks, the YM/Dow is not representative of the US markets economy, and as I’ve read, the S&P500 and its satellites (SPY) are used as global benchmarks for risk & sentiment. Plus, we can also look at the VIX, although there are volatility indices for the others for the Dow and the Nasdaq. The VIX is hugely important and correlates negatively with the S&P500, so when the index is moving higher, the VIX will be moving lower, which is when the old adage of ‘when the VIX is low, it’s time to go or look out below’ comes into play. The question of what constitutes ‘low’ is interesting, as the VIX bounces between ranges before moving strongly in one direction or the other owing to market volatility. And we only need to look at the daily chart for the VIX to see the ranges and compare the extremes with the daily chart of the ES or S&P500. When the VIX is elevated, the market is in panic mode. When drifting lower and perhaps towards single digits, market participants are complacent (a word I prefer to ‘greedy’), so expect higher prices to continue. There is much more to the topic of volatility and the VIX, and it is something David & I cover in detail in our upcoming stock trading & investing program. We have been working on this for most of this year, but we are coming to an end and will be looking to launch in the new year. You can sign up for details of the Program here: http://bit.ly/3uCSxf5
To return to the ES/S&P500, we can see how the index has been trying to reverse this week’s slide lower in an attempt to ready itself for the traditional end of year Santa’s rally. We can see how it has bounced off some strong support at the 3925 area with yesterday’s price action pushing the index to test the volume point of control at 3976 and what is encouraging is that the volume appears supportive, particularly at a time when liquidity is usually falling as we approach the holiday season.
Today’s price action has seen the index push through the vpoc ahead of the PPI release, which came in at the time of writing this post. The PPI came in higher than expected, and the result has been some extreme price action, with the ES falling 60 points before rallying higher on huge volume. Later today, we also have the UoM (University of Michigan) Consumer Sentiment and Inflation Expectations along with the Wholesale Inventory numbers, all due at 10.00 am NY time, so we can expect a degree of volatility.
Next week we have the CPI inflation data and, of course, the FOMC, which will determine whether this year’s Santa rally really does get underway.
All the indicators featured on the charts are my own and available from Quantumtrading
By Anna Coulling
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