Short Term Trading Week Starting: 25 Jan, page-140

Happy Friday traders,

On Thursday in US action, the SPX got a bounce to close at 3787.38 or +0.98% after a run to a high of 3830.50 on moderately positive market internals and a green sector profile.  The action was based on an overnight rebound from the ES 50 day moving average near ES 3700, but the SPX cash index has not yet touched its own 50-day average.  The reaction bounce and short covering followed Wednesday's SPX close at 3750.77 or -2.57% on mixed and moderately negative market internals and a broadly negative sector profile -- along with a big jump in implied volatility that took the VIX up 37.21 points or +61.64% on the session.  Yesterday's down action started with margin issues to do with some high-flying names and reactive selling ensued and was not stemmed by very dovish FOMC statement and press conference.

We had more ES futures structural repair in Wednesday's session.  Futures gapped down from Tuesday's low of 3840, leaving the bottom of the gap at 3806.75, and then blew through points of control at 3770 and 3741 to close at 3716.  Most rth trading time was spent near the high-volume node at 3782.50.   Thursday's ES cash session price action brought us up to the top of the consolidation bracket that spans 3768 to 3823.25, but we ran out steam and could not break into the newer five session bracket that tops out at 3862.25.  ES gave up half the rth intraday gains in the last three hours of the regular session, bringing us to a close of ES 3781.  As you can see in the chart below, we are treading near the bottom of that previous balance area at ES 3768. Traders will be cautious after that late day selling pressure.  The VIX left off at 30.21 after giving back -18.81% today.

SPX 3800 and 3830/ES 3824 are obviously resistance areas now. On any follow-through weakness, traders will look to weekly cash session support around 3750/3760 and assume the 50-day moving average around ES 3708/SPX 3715 for firmer support in both the overnight futures and the SPX cash session tomorrow.