Monday, December 3, 2012

S&P 500 futures (ES) near support from their 2-week price channel

DEC03 1453EST. The e-mini S&P 500 index futures contract (ES), a proxy for the S&P 500 index, is approaching support from a two-week price channel, shown below in dashed red. This fortnight-old channel represents equities' collective recovery from their post-election sell-off. Today's intraday market action has been negative, with the ES declining from a pre-market high of 1424, and the current price level of about 1410 is only some 5-8 points above the two-week channel support level.

ES. Nov 9, 2012 to present. 15-minute candles.
Looking again at the above screenshot, it's worth noting the behavior of the oscillator that is located below the price graph. This oscillator measures the difference between price and the 200-period simple moving average (in this case each "period" is a 15-minute increment). Price is currently some 5 points below the 200-period SMA, but if price action was to decline some 5-10 points further in the next several hours (before the value of the SMA can significantly change), the reading on the oscillator would be in the vicinity of negative 10 to negative 15. Such a value would match the lows of the oscillator from Wednesday, November 28 (circled in yellow above), which was the most significant market pullback over the last two weeks.

Glancing again at the price graph, a further argument for 1405 support is provided by today's pivot points. Pivot points are the five colored horizontal lines overlaid on today's price action, and they represent estimated horizontal support / resistance levels that are calculated on the basis of the prior day's high, low and close. According to Technical Analysis by Kirkpatrick and Dahlquist (2011; pg 261), floor traders often incorporate pivot points into their trading strategies, which in turn contributes to the probability that the formulas' predictions are fulfilled.