S&P Nearing A Top?

Is the S&P approaching an intermediate high?

Figure 1 shows why I see this as a possibility.

From Oct 10 2010 to Nov 11 2011, we see that the daily ATR was 30 points (with a standard deviation of 10); and the daily volume as 2,301,165 (with a standard deviation of 602,436). Now compare this to the move from Nov 13 2011 to date.

We see a true range of16 points (with a standard deviation of 441,093).  In Steidlmayer terms, the ES is not ‘facilitating trade’ ii.e. the up move is in weak hands. The reason the ES is going up is because there is an absence of large sellers; as a result, the buyers are ‘absorbing’ the limited supply and when that is gone, the ES moves up:

Let’s turn our attention to the small rectangles in Figure 1. We see that the ES forms a small congestion pattern, then spurts up for one day. Another small congestion forms that is followed by a spurt up. 

Figure 2 is the Emini, March, Weekly. It shows we are nearing the Primary Sell Zone of the congestion pattern bounded by 1373.50 to 1068. We also the ES has attained the minimum retracement for a sideways market (78.6%).

These two patterns, the drying up of range and volume as the ES approached the Primary Sell Zone suggests that a top may be nearing.

Figure 3 shows the relationship between the pre-day session and day-session. We see that the volatility is taking place in the Asian and European time zones. This suggests that US traders are still operating under the illusion that the FED will prevent any substantial decline for US Stocks. In turn, this suggests, any sustained selling pressure will have  to originate from Europe - the selling pressure, as in May 2011, must be strong enough to overcome the inertia fostered by the belief in the FED.

This does not mean that we won’t see some sharp drops driven by domestic US news. For example, tomorrow we are expecting to see +135K new jobs with the lower end of the range coming in at 110K. Now, if the number comes in at 100K, we’ll probably see a sell-off on Friday.

What I am saying though is this will not be enough for a sustained sell-off if I am right about the underlying sentiment. For that to be overcome, we need to see a sell driven by large supply; right now, that will probably have to come  from Europe.

FIGURE 1 Daily Emini

FIGURE 2 Weekly Emini

FIGURE 3 Emini 60-minutes