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Swing Trends
Daily Newsletter
ES E-mini & Futures Outlook & Technical
Analysis
Issue #23 - Thursday
18th June 2009

Disclaimer & Risk Warning

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simulated results do not represent actual trading results. The effect of market factors, such as, but not limited to a lack of liquidity, may be under or
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S&P ES E-mini & futures Outlook for Thursday 18th June 2009

Economic Releases due today:

04:30ET [Switzerland] SNB Interest Rate Decision

04:30ET [UK] Retail Sales data & Money Supply
06:00ET [UK] CBI Industrial Trends Survey
08:30ET [USA] Jobless Claims
09:00ET [USA] Tim Geithner due to speak
10:00ET [USA] Leading Indicators
10:00ET [USA] Philadelphia Fed Survey
10:30ET [USA] EIA Natural Gas Report
11:00ET [USA] 3 & 6 month Bill and 2,5,7 year Note Announcements
16:30ET [USA] Fed Balance Sheet
16:30ET [USA] Money Supply data

Please see full disclaimer & terms of use and updating economic calendar at: http://swingtrendsweeklypreviews.blogspot.com/

Commentary:

Good morning everyone! From today you will notice that all the charts on this website are now the
ESU9 futures contract (September expiry) and the reason for this is options expiration! Historically
near to the time at which options expire, increased volatility has been observed within the financial
markets as traders scrambled to cover positions and roll them forwards. However, in recent years (it
is suggested that, due to the increasing efficiency of the markets) this effect has lessened somewhat
and whilst I will be exercising some caution today around the time of expiry in trading, options
expiration is certainly not as prohibitive for me as it is for some traders, who refuse to trade at all on
options expiration days.

It used to be the case that the Wednesday before options expiration was termed "Weird Wollie
Wednesday" (a term coined by Don Wolanchuck) to describe the strange and volatile price
movements that often occurred (it was suggested) due to faster deterioration of options premiums
during the week prior to options expiration. Although, W.W.W. was fairly quiet yesterday and has
been across recent times supporting the suggestion that volatility near to options expiration is less
than historically has been the case.

Moving to today’s charts, a defining factor in today’s trading is likely to be the bullish descending
wedge that price broke from the upside of during yesterday’s US session.
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Having broken this wedge though and challenged the 200sma(15), price has now put in a lower high,
meaning that my intraday trading bias remains neutral at this time. Currently 15min Gann swing
trend is neutral/down, whilst price is underneath the 200sma(15). In order to turn this bias to up,
the 914 area of resistance would have to first be decisively broken to the upside. This would both
put price above the 200sma(15) and in a 15min Gann swing uptrend. In order to turn this bias
decisively to down I would like to see a break of the 906 area of support. The trend-lines of this
wedge are likely to remain important support in the near term and certainly have the propensity to
alter price movement over the course of today. Additional important support and resistance likely to
shape today’s session is highlighted below.
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Clearly, with multiple levels of prior price respects across time frames and both the daily central
pivot point and weekly S2 pivot point in the 906 area, this region of support is expected to be
particularly strong today. Similarly, the 914.5-912 band of support is likely to be strong given a
similar level of confluence in this region.

I wish you the best of luck today! See you all in the chatroom!
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Featured Trading Idea & Additional Analysis

Having profited very nicely from Monday and Tuesday this week, it was of little consequence to my
mind to sit aside from all but scalps yesterday in a market environment inherently more risky and
less predictable than it was earlier in the week. Whilst we had a trade planned, the market did not
oblige us by fulfilling that plan and so we stayed out trouble on a day with more choppiness than any
other day in the past month (count the sheer number of individual 15min Gann swings yesterday)
and which offered no conservative, repeatable, high probability trading opportunities.

Despite options expiration, I will be serving up a featured trading idea today as I feel the market is
very much poised to offer yet another of these high probability trading opportunities which we have
seen so far this week. Potentially of more concern to me today than options expiration, is the
multitude of economic news releases throughout the trading day. I am always wary of entering
trades near to and holding trades through such economic releases as I believe not only is it very
difficult to accurately predict the outcomes of any given news release, but also potentially even
harder to accurately predict market reaction to the economic numbers released. Events particularly
likely in my opinion to move the market today are the jobless claims data (due for release pre-US
open) and the “Leading Indicators” (due for release shortly after the US open). However, I will also
be showing the bond announcements at 11:00ET greater than normal respect today due to the large
number of note and bill announcements occurring at the same time. Should I be in a trade
approaching a news announcement today, I will certainly be considering scaling out of positions
prior to the releases and/or using active stop management to dramatically cut my risk exposure.

Returning to today’s charts, as I suggested in the publically available commentary today, I hold a very
much neutral bias for the ES at this time. Not only are the 914.5-912 and 906 areas between which
the market is currently consolidating important on a 15min timeframe in determining Gann swing
trend, but also on an ES 60min chart.

ES 60min Chart

914-912

906
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One can clearly observe multiple respects of both levels and this, coupled with the multiple layers of
confluence outlined in the publically available commentary makes them both very important levels
into today.

Yet, in which direction is the market likely to break from this consolidation? And in which direction
is a breakout likely to give us sustainable and high probability trading setups?

Considering the 4hr ES chart with Bollinger bands, which has become something of our guide to
medium term volatility of late, one can clearly see the contraction of volatility that began yesterday
has been maintained through today’s European session.

ES 4hr Chart

Continuing contraction of volatility

increases likelihood of current lows
being held in the 900 region and also
means that any short trades beneath
906 will be very limited in terms of
#A
profit targets and subject to
potentially sharp reversals.

This contraction of volatility makes it increasingly likely that lows in the 900 region will be held (for
the short-term) and that any short trades beneath 906 will be very limited in terms of profit
potential and also possibly subject to sharp reversals.

This view is also supported by an alternate illustration of the trendline marked “#A” in the diagram.
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ES 4hr Chart

Alternate
interpretation

#A

With this alternate interpretation of the trendline in question, not only is price at horizontal long-
term support, but also yesterday made a return move to this previously broken trendline. The
presence of this trendline would also limit further sustainable downward movement on a break of
906.

Consequently, today’s featured trading idea is a long trade based upon a breakout of the
consolidation we have been seeing on the 15min and 60min charts to the upside (please see chart
overleaf). Upon decisively breaking the 914.5-912 multi-time-frame resistance area, a trading
opportunity may be presented on the return move to this area as a role reversal area with multiple
confluences.

A potential profit target today is suggested to be the 921 area. Not only is this area resistance in the
form of the daily R2 pivot but this area also represents 95% of daily ranges and is very much a region
that other traders holding long positions will be looking to take profits in. Additionally, should one
consider the current consolidation to be a longer time-frame “inverse head and shoulders” chart
pattern (see 60min chart on the very last page of the newsletter), with the neckline in this 914 area,
the measured move price target for this chart pattern (which would be activated on a decisive break
of the 914.5 area) would also be 921-922. Lastly, this region also represents the 38.2% Fibonacci
retracement of the recent decline from the highs – yet another layer of confluence suggesting that
profit taking would be likely in this area.

Good luck to you all today! 

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action

ES 15min Chart

PROFIT ZONE 921

914.5
ENTRY ZONE
912

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ES 60min Chart

Inverse “Head & Shoulders”

... Target = 921-22 on break
of neckline

ES 4hr Chart

Fibonacci retracement as
potential profit target