S&P 500 Futures Outlook for May 25, 2016 – It was a very interesting trading day yesterday. With a range clearly present and lots of traders ready to play it, the balance was tipped with a breach and hold above resistance.
So what happened? Well, stops put in place began to get “squeezed” and the price action pressed higher. Some of the strongest price actions upward come when many traders are positioned on the wrong side of motion and stops drive action higher. This is why we use stops as well (to minimize risk).
This is my supposition for yesterday’s beginning, and the range break brought traditional ‘breakout range’ trading strategies into play after the higher low presented quickly. It is for this reason that I consistently say that we watch for the higher lows –where buyers begin to cluster-to develop, as they alert you to a shift in trading momentum.
Today, S&P 500 futures sit again at resistance near 2085, and buyers are bumping their heads into this space, unable to breach with overhead supply high. Above there, is 2088, and 2093.5 – though this move seems a bit tired, so if we expand up into those spots, we’re very likely to fade. Support sits now well above congestion, but with a bit of an auction vacuum created by squeeze action yesterday, we should fade into 2069.75, and perhaps even down into 2060.5. I’ll be cautious – more than normal –today.
Momentum on the four-hour chart is quite bullish, and well into trending spaces, but tired, so buyers will be ready at value areas, but should have trouble cresting to new highs today. That said, caution is required all around today. See the setups below.
See today’s economic calendar with a rundown of releases.
THE RANGE OF TUESDAY’S MOTION
E-mini S&P 500 Futures (ES_F)
S&P 500 Outlook for May 25, 2016 – Momentum sits with the buyers for yet another day, and they are testing near resistance right now. Sellers hold control of the area between 2083 and 2085.5, and if they are moved aside in the face of current momentum, we’ll see those upper targets near 2088 and 2093.5 become much more likely,
Upside trades – Favorable setups sit on the positive retest of 2078, or a positive retest of 2075 with positive momentum. I use the 30min to 1hr chart for the breach and retest mechanic. Targets from 2075 are 2077.75, 2081.25, 2084, 2085.75, and if we can catch a bid there, we could expand into 2088.25, 2090.5, and 2093.5. A retest of these levels that hold will press the chart into resistance ahead near 2100.75, but that seems very unlikely at this juncture.
Downside trades- Favorable setups sit below the failed retest of 2076.5 or at the failed retest of 2084.5 with negative divergence. It is important to watch for higher lows to develop with the 2084.5 entry as strength of motion today sits very much with the buyers. Retracement into lower levels from 2084.5 gives us the targets 2081.75, 2078.5, 2076.5, 2071.25, 2069.75, 2065.5, 2063.5, 2060.5, 2058.25, and perhaps a retest near 2056 before bouncing.
Have a look at the Fibonacci levels marked in the blog for more targets.
Crude Oil Futures (CL_F)
Outlook for Crude Oil May 24, 2016 – The API report released a significant draw above expectations – and EIA report is ahead at 10:30am – We are right up at resistance again, but even with the surprise draw numbers, buyers do not have the power to breach overhead supply. There has been lots of arguing about crude oil prices here at 49.04- 49.24. Momentum is divergent, but still positive, so big pops are possible, but will not hold today – speaking probabilistically, that is.
The trading range on crude oil suggests support action near 48.4, and resistance behavior near 49.74.
Upside trades on crude oil can be staged on the positive retest of 49.17, or after a dip into 48.45, but carefully watch for a lower high to develop with the drift down. I often use the 30min to 1hr chart for the breach and retest mechanic. Targets from 48.45 are 48.8, 49.1, 49.17, 49.42, and 49.74. If we expand over that, we could see 50.04, and 50.65.
Downside trades on crude oil continue to setup well below failed retests. Today, this is the failed retest of 48.4, or the failure at the retrace of 49.40 under negative divergence gives us the trades with high reward to risk events. Retracement into lower levels from 49.4 give us the targets 49.24, 49.12, 48.84, 48.66, 48.45, 48.22, and perhaps 47.64.
Have a look at the Fibonacci levels marked in the blog for more targets.
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As long as the trader keeps himself aware of support and resistance levels, risk can be very adequately managed to play in either direction as bottom picking remains a behavior pattern that is developing with value buyers and speculative traders.
Twitter: @AnneMarieTrades
The author trades stock market futures every day and may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
