Yesterday’s setup for the e-minis looked pretty straightforward: a drop through the 200-day moving average and backtest of the 2.24 Fibonacci extension at 2729. Futures had already dropped through the 200-DMA and were heading south when the dismal retail sales data dropped.
I hedged my bet, redrawing our daily downside target to include the 10-DMA — just a few points below the Fib extension.
Fifteen minutes into the session, as ES reached 2730.25, the headlines started dribbling in. Fed Governor Lael Brainard publicly commented that QT should end this year, ahead of schedule. Larry Kudlow commented that there was a glitch in the retail sales data. Mnuchin felt all warm and fuzzy about the trade talks.
Faster than you could say “Plunge Protection Team” ES reversed course and SPX closed the day with a gain. But, the move didn’t feel finished. As I wrote at the end of the day:
ES looks likely to test its SMA200 all over again. But, will it make it on down to the 2.24? Its SMA10 will probably be up to 2728 by tomorrow morning, adding additional support.
I guess the market fairies were listening, because that’s exactly what happened overnight. ES dipped to 2729 right as the SMA10 was arriving on the scene, then spurted 27 points higher — breaking out of the falling white channel in the process.
The algos are in full support mode at present, though a few charts suggest a pop and drop is in the cards if VIX doesn’t pull off a game changing plunge.
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