The markets are doing a Trick or Treat!
The relief rally late last week did not follow through a second day after recording at least 3%. On Friday, questions and doubts about the Eurolution (European solution) precipitated and the market went sideways. It was an awesome day to take a holiday as it was really going nowhere before and during market open hours.
After mulling over the weekend, a few things are emerging, more doubts about the Eurolution are surfacing and it is showing in the currency and equity markets. Earlier today, Japan intervened in the Yen and that boosted the USD, triggering a quick selloff in the Euro which has recovered a little. I suspect that that is more to go later today.
Last Thursday, the ES closed just above the 200MA, and this was followed by a doji on Friday. The ES is currently at 1268, just below the 200MA and its close today should be hinting on the direction for this week...
Meanwhile, the weekly ES charts are bullish, the daily ES charts were bullish and overbought... hence, it looks like a retracement of sorts is incoming.
The rally has not really attracted a significant increase in volume and this is suspect to a relief rally. The ES open interest is still flat indicating that net bullish positions are not being opened with the rally. Correlating the USD (/DX) and perhaps the EUR./USD, the /DX futures had bounced off the major support line of 75 and is trapped between that level and 76.5.
I am watching the USD for now... as its breakout or breakdown is likely to indicate the longer term trend in the equity markets.
For now, I am staying out and expect some consolidation, if not a retracement in the equity markets.
Stay safe for now.
Have a great Halloween!
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