Wednesday, July 7, 2010

07/07: A one-way day, markets shoot higher

Days like today are rather frustrating for traders with a predilection for contrarian strategies, of which I am one. Here's the whole story, in a single chart:

Relentlessly, indefatigably, most remarkably, markets climbed higher, higher and higher still, with /ES advancing 40. Only twice during that dizzying rally did the instrument stray more than 5 points from its hitherto-notched intra-day peak, once by 5.5 points and another time by 5.75 points. Thus, a trailing stop on a long ES position with a mere 6 points of "leash," entered at the pre-market nadir, would have captured the whole 40 point rally. Remarkable!

By the closing bell, the S&P-500 had advanced 32 points, or 3.1%; the DJIA bulked up by 275 points, or 2.8%; and the NASDAQ added 66 points, or 3.1%.

The rally may yet be all smoke-and-mirrors, however, which is why I've refrained from taking any long positions into the overnight hours. Today's rocket-ship was not fueled by above average volume (see below), there was no particular news that might have provided a durable impetus for buying, and other measures of risk aversion, e.g. Treasurys, as measured by /ZN futures, remain elevated. That said, there are certainly plenty of other risk metrics showing marked improvement over the past two sessions, including /CL (crude futures; up), EUR/USD (up, and rising since a nadir on 6/6), and even to some extent /HG (copper futures; somewhat firmer).

(As an aside, I've noticed that the WSJ refers to the plural of Treasury, when referring to the financial instrument, as Treasurys. Could it really be so? Until I hear otherwise, I'll be employing the convention, as I've done in the above paragraph.)

Here's how the day's volume stacks up, quite literally, against the past 180 days, first on the NYSE, second on the NASDAQ. Apologies for failing to slap on a 30EMA, or similar.


I am most curious what tomorrow's markets will bring! /ES = 1100? Or /ES = 1000?

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