Pre-Market Analysis (ER2) 8/19

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Dow Daily

S&P Daily and COMPQ Daily

Performance of Major Indices

Possible market-moving factors (for Aug 18)

1. Financials (Fannie Mae and Freddie Mac plunged; general weakness across the financial sector)
2. Housing
3. Low trading volume amplifying price moves

Factors that will potentially move the market today:

1. Financials
2. Oil
3. Economic data report

Economic Data to be released today

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Russell 2000 (E-Mini)

ER2 today

1. An evening star has formed on ER2’s daily chart, although I wouldn’t be too concerned.

Of all the candlestick patterns, it seems that the ones that are consistently more reliable than the rest are the hammers, the shooting stars, the haramis, the engulfing patterns, 3 white soldiers (this is more complicated though and depending on where it is, and whether the bodies are getting bigger or smaller, it can be a reversal signal or a trend continuation signal) and the belt-holds.

Of course they have to be at the right place to be an established pattern. For instance, a hammer is a hammer only when it’s at the bottom of a downtrend.

2. I am really wondering: will ER2 attempt to fade up today?

3. Open interest and volume (volume for Friday should have been 100 over thousand but I took the number off a daily chart which told me it was 500 over thousand. An error apparently, which completely threw me off. One more reason to not know more than what one needs to know to trade. But people don’t change. That’s why I’m still writing) have both been going down

4. When price goes down with a drop in volume and open interest as well, it should be a sign of strength. Coz as soon as the weak players sold all they have to sell, market will be ready to pick up again.

5. What I noticed is that ER2 has been trading in a range for 5 days now. Without an increase in open interest and volume, it’s not likely to break up or down.

6. I think ER2 is going to continue to inch its way up to the high of 765, with increasing open interest and volume. I think we will see a small bullish candle today that opens and closes within yesterday’s range.

7. After a series of upward move in price to the top, a drop in open interest again would signal that a reversal to the downside is imminent.

A recap on what I said about ER2 in the short-term (posted yesterday in premarket analysis 8/18):

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 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 Daily

An Article a Day for D:

The Morning Gap (Part 1)

The Morning Gap (Part 2)

The Morning Gap (Part 3)