By Mike Paulenoff, MPTrader.com
To describe today's action as boring or subdued would be doing it an injustice. Today is a really quiet day. Although it's not unlikely that such a day would occur after a big upside recovery rally in the last hour Friday. Nonetheless, in the first hour of trading the indices tried to move above Friday's closing highs. The December E-Mini S&P got up to about 1037 after Friday's close at about 1030. The E-Mini Nasdaq got up to 1386 , off of Friday's high of 1376.
So you can see that there was pretty substantial follow-through, but all that follow-through has really been given up, and right now as we speak both indices are basically unchanged on the day, maybe slightly positive.
The question is: What is this pattern that is unfolding? It seems to me that the highs of the first hour of trading ended the first part of a complex recovery rally off of Friday's lows. If that proves to be the case, then all the action since the first hour's high is in a mini-sense countertrend to the upmove from Friday and into this morning.
So what I expect to have happen is that after this little pullback is over, another rally should transpire that I think should move higher than this morning's first-hour peaks, that is above 1037, maybe into 1040, on the E-Mini S&P and above the 1386-87 area and perhaps into the 1390-92 area in the E-Mini Nasdaq. After that I think this rally is over. We'll look back on it as a countertrend advance in the aftermath of the October 15-24 decline, and we will go back and retest the lows after this rally is over.
One more point about this: We could have another pullback within the intraday range. That is to say perhaps we get down to 1025-26 in the S&P before we take off and go to 1040. That would provide a nice long-position trade. But keep in mind that my longer-term work is telling me that this is just a rally in a market that is destined to resume its decline.
As for the QQQs, trading similarly to the E-Mini Nasdaq, they closed at about 34.20 on Friday, and the high today in the first hour of trading was 34.45. Since that time they pulled back nearly to 34 even, and right now they are at 34.20-.22, right at the closing area. It seems to me that either the Qs will pull back to 33.80-.90 and then go up to make marginal new highs at 34.45-.50, or they will just take off and go to the 34.45-.60 area and conclude the rally from Friday's low, and prior to the next rollover. This next rollover I think will be a larger move to the downside that will break 33.50, Friday's low, and carry down to the 33.20 area at minimum.