Pre-Market Analysis (ER2) 8/18

(Click on charts to enlarge)

Dow Daily

S&P Daily and COMPQ Daily

Performance of Major Indices

Possible market-moving factors (for Aug 15)

1. Oil fell to $111
2. Retail (better than expected earnings in the sector)
3. Low trading volume (typical summer volume) amplifying price moves

Factors that will potentially move the market today:

1. Oil (now at 114.70, up from Fri’s 111)
2. Financials
3. Friday’s intraday move

Economic Data to be released today: Nil

________________________________________________________________

Russell 2000 (E-Mini)

Like I said before, August is traditionally a bad month for the bulls. This is in part a result of market players going on summer holidays, and partly due to net selling of shares and funds to support seasonal expenses (travels, tuition fees, etc).

Looking at the charts of DOW, S&P and COMPQ however, it looks like Aug isn’t going to be so bad after all. That said, fundamentals will determine the extent to which these patterns develope as I think they will. Price of oil, the health of the global economy, and the perceived duration of the prevailing financial crisis and housing slump remain the foreground issues - in an atmosphere of uncertainty, any news that imply a deviation from the expected will cause the market to over-react and price to swing wildly.

RUT

The past 2 weeks have seen the Russell 2000 diverging positively from DOW and S&P on several occasions. The small caps are clearing showing resilience in the disorderly market and economy. For the week of Aug 18-22, RUT has reaped the highest gain among the major indices, when DOW lost 0.6% for the week.

As far as this week is concerned, RUT could finish in the positive territory again.

ER2 in the short-term

ER2’s rally since mid July seems to be losing momentum and we are starting to see some sideway moves. A surge in volume on Friday that is accompanied by a drop in open interest tells me that the high of 754.70 reached is probably a result of SHORT COVERING.

Weekly chart (below) shows that it’s possible that we could move up further, but declining open interest is telling of the topping of a trend.

If open interest were to drop drastically from this point on, and price of ER2 were to go down with it, it would mean that those who are in long positions are offsetting them, and ER2 will reverse to its previous downward move. Any chance of ER2 continuing on its current upward trend will depend on open interest stabilizing at the current level of around 570,000.

ER2 today

There’s a bearish divergence for Aug 14 – 15, so there’s a possibility we won’t see a high that’s higher than Fri’s high of 764.61. I’m thinking that we’re likely to trade in the range of 744 to 758 today.

ER2 Weekly

ER2 Daily

An Article a Day for D: Simpler is Simply Better