Wednesday, May 22, 2013

S&P500 futures break 3-hour trendline on a 3-hour NYSE Tick high

MAY22 2249EST. Although posting on these pages over the past several weeks has been slower than even US GDP growth, today's Wall Street volatility has shamed the author back onto the hamster wheel.

And yet while today's big-picture trading was dramatic, with a peak-to-trough distance on the S&P500 futures contract (/ESM3, the June 2013 contract) of 39.25 points (the greatest since April 15th), this post will briefly examine a specific trade setup that appeared in the late afternoon.

At 2:51p CST, S&P500 futures broke through a three-hour descending trendline, shown below in dashed red. The trendline is defined by the three local price extremes indicated by a solid yellow line, which occurred at 12:00N, 1:00p, and 2:00p (interestingly, right at the top of the hour in each case). Such a break of trendline has the potential to be short-term bullish, particularly if confirmed by bullish action in the NYSE Tick, a very short-term indicator of market sentiment.

ESM3 (E-mini S&P500 futures contract, June 2013 expiration). 9:00a CST to 3:30p CST on May 22, 2013. 1-min candles.
Sure enough, as the S&P500 futures were breaking the 3-hour descending trendline at 2:51p, the NYSE Tick registered a reading of about +750, which was the high reading of the afternoon (matching the high at 2:44p). A few minutes later, as the futures continued to rally, the NYSE Tick reached an even greater high of approximately +865. (Caveat: Volatility of tick readings generally increases in the minutes before the close, so the setting of multi-hour highs and/or lows carries less relevance.)

NYSE Tick. 8:30a CST to 3:00p CST on May 22, 2013. 1-min candles.
The aim here is not to delve into the specifics of various NYSE Tick levels or to discuss trendline breakouts in depth. Rather, the example illustrates that market opportunity is available on a nearly continuous basis, often in a counter-intuitive direction -- after all, the long trade in this example occurred deep into a 2.5% sell-off from midday highs.