In the US on Tuesday, we saw the fast liquidation above SPX 4100 discussed on the weekend. The unofficial closing value is 4134.94 or -0.68%. ES futures settled at 4121.50. VIX implied volatility saw a run up of +8.39% and holds around 18.74 as of this note. You can see we are pausing near the 4.14 poor low in the 30-minute candle chart below. You can also see how they seem to have respected the levels in question. This break lower happened on moderately weak advance decline lines (-1500 to -1800) and breadth (-4:1) and uniformly negative NYSE tick distribution for much of the session. This puts us sort of in an awkward position because the big hedging at 4100 is a place that would likely require hedging adjustment by those who have sold protection if we break it on strongly negative market wide internals, i.e., all or most sectors selling with depressed internals. So, bulls would like to hold that 4100 area. If we don't hold that level, we risk going further into the points of control outlined previously. That level is much more than a round psychologically important number -- it is also hedged up pretty tight so far this week and prone to further hedging by those who deal in that kind of protection. Below that, the 20-day moving average is about SPX 4050 and the halfway retrace of the recent rally from 25 March is near the 4 March based trendline near 4020. Keep an eye on that weekly hedge support at the 4100 area and the two points of control immediately below on a regular trading hours basis. The integrity of that hedge will become clearer tomorrow.
Near cash equity closing, we had a rally to the halfway point of the day's action at 4131, so obviously we had some stubborn bulls or robots doing their thing in the last half hour. Still, the point of control for the day is tentatively at 4127.25. But note that the low of the day of 4110.50 in the ES futures is a poor low without sufficient excess. You can also see that in the profile chart below. There are two reaction phases with this kind of low. The initial phase is usually a retreat (at least during regular trading hours) and the second phase is a return to that level. It is considered an unfinished auction until it is dealt with. While we don't have to return right away, it is something to keep in mind. Traders will likely exercise a bit of caution with position size here.
For what it’s worth, I seldom see as much wishy-washy commentary as I did today, and that matches well with the dissonance that can be seen in the last few days chart action itself. Bullish and bearish narratives are starting to overlap, and that is common at such lofty levels. One of the prominent discussions involved selling the stellar earnings. Suffice it to say, traders are in psychological flux as we vet earnings nervously against current levels. The ES futures overnight session might be somewhat at the mercy of Asian and European reaction to our session, but keep in mind that although overnight profiles can be informative, the important ES futures action happens in our cash session. Wishing you a safe and happy day.
