Sunday, November 7, 2010

Thoughts on Next Week

It's tough to nail a short-term Top in an environment where the Fed is pumping so much capital into the markets (QE2), but we're beginning to see some exhaustion in Nasdaq (NQ), which could lead to a breather in ES as well. NQ has shot up without establishing any solid support, so a pullback (whenever it comes) will probably be swift. Above here, Key Resistance levels in NQ are 2193.50 and 2206.50. ES has been lagging NQ, and could still move higher but the short-term upside from here looks limited (10-20 points). Bigger picture, Buyers are in Control and a pullback to the low 1200s would present a good buying opportunity. The market shouldn't revisit the 1179-1180 Area if the up-trend is to remain intact. 1185-1192 is strong support and longer time-frame investors are likely to load up on the Long side *if* ES pulls back to that Area. As of now, a pullback to 1185-1192 seems unlikely. We have very few economic reports in the coming week, and I anticipate the market to establish another trading range (balance area). From a Trade Location perspective, as price moves higher from here, the Risk/Reward begins shifting in the favor of Sellers and I will be looking for Shorting opportunities at Resistance. That being said, the safe strategy is to play the upside rotations at Support. Thanks to QE2, there's a constant Bid in this market, which means there's an even higher probability of rotation at the Support Zones.