S&P 500 Index Futures (/ES) are the back bone of the market.  Therefore it is always a good idea to keep a close eye on them.  Here’s our current break down.

1. A recent Triple Top @ 1460 (gray ovals) with a height of 40 points indicated a downside move to 1380 (red rectangle) after support @ 1420 broke. 
2. The Triple Top measured move came to fruition, taking /ES to 200 day Simple Moving Average, aka SMA, support (green line) coupled with one year uptrend support (purple line).
3. Continued sell side pressure caused a break of both SMA and uptrend support, resulting in a swift three day sell off to 1340 before /ES caught a bid.
4. /ES quickly bounced back above 200 day SMA, similar to early June (orange oval).

Our conclusion after noting these technical items is “cautiously bullish” on /ES. The reason we are cautious is because unlike the first break of SMA support (orange oval), this break was coupled with an uptrend support break. That should not be discounted, regardless of the fact there were only three consecutive closes below the uptrend support line. 

We are in wait & see mode, and prefer range bound strategies like wide Jan13 Short Strangles for the time being.

Let us know if you have anything to add!

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There is a Head & Shoulders pattern in the works on S&P 500 emini futures (/ES).  Note the three grey ovals representing the left shoulder, head, and right shoulder.  The up sloping purple line represents the neckline support of this pattern, which is being tested as we speak.  The blue rectangle measures the move from the top of the head to the neckline directly below, then we duplicate that move assuming a neckline break some time this week to show the measured move if this formation comes to fruition.  In the end, the green oval indicates a measures move in the 1275-1290 range, which takes it back to previous resistance turned support as well as the 200 day simple moving average support. 

Makes a lot of sense, and we intend to position bearish if the neckline support breaks in the coming days.

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Let’s start with S&P Futures (/ES) since they are the main benchmark for the broad market.  This is one of the most liquid financial instruments on the entire planet, and gives us the most crystal clear perspective of the market.

Bullish Points: A symmetrical triangle recently formed (yellow lines). A couple weeks ago /ES broke symmetrical triangle resistance(gray oval), which is bullish.  This break coincided with a break of 200 day simple moving average resistance.  The 200 day SMA is very relevant in /ES, and this double break is very bullish for /ES during the first quarter of 2012.

Bearish Points: 1300 (red line) is a major price point in /ES.  It is both psychological, and has proven reactions in the past year. At the moment 1300 is acting as resistance and /ES is right at it.  This is likely to result in a short term retracement to symmetrical triangle resistance turned support, at which point a bullish entry make a lot of sense. 

A short term short position makes sense here.  Upside risk is 15 (1303 stop), downside potential is 40 (1250).  That translates to 2.6:1 reward to risk, meaning the pot odds favor short term downside. 

This can be played via a short position in the future or instruments like SPY & SSO.  We prefer bearish options strategies in SPY here, and may even consider a moderately neutral strategy.