Sell Easter, Buy The Fourth?

Shallow Thoughts

The Fed has cut back on its outright Treasury purchases. But the Treasury is still pounding away at the market, flooding it with enormous amounts of new supply day after day.

This should be bearish, but so far it hasn’t been. Maybe that’s because the Fed pumped in so much extra cash in the first place and now just wants to take some back to skim off some of the froth.

Hourly ES S&P 500 Futures Chart

The S&P ES futures are down about 6 points at 2730, at 7:15 AM in New York, 1:15 PM in most of Europe.

Yesterday we recognized that if the ES cleared 2690, it should be good for another run at 2730-40. And if that’s cleared, we saw that the target would be 2875.

So they peaked above 2740, but the air got a little rare, and the Europeans got a little gunshy. The New York syndicate is just sitting down at their screens now, in their pajamas, no less, and the question is what they’ll do.

The Fed has sent a signal that it’s not going to be as generous in the days ahead (see Shallow Thoughts above). Trust me, the New York gang knows this.

So how close to the edge do they want to come? My guess is, “Not very close.” But we’ll make a judgment based on the market signal, not based on my gut feelings.

I believe that signal will be what happens around the line at 2730. If they fall below that, the S&P should lose 60 points in a hurry. 2665-70 would be the next crucial support level. At that point, it would again be a wait and see the situation. But there’s a very good chance that if the market does start down early in the day, it will follow through to the bottom of this week’s range, to around 2625.

On the off chance that they hold it together here around 2725-30, then they take a run at the high of 2768 again, but this possibility seems to be slipping away right now as I write.

Hourly indicators tuned to a 5 day cycle frequency have turned lower, with a 3 day cycle low ideally due late today. But a 5 day cycle low isn’t due until Monday or Tuesday.

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