Key S&P E-Mini Levels That All Traders Should Monitor

12/01/2010 12:01 am EST

Focus: FUTURES

Corey Rosenbloom

Founder and President, Afraid to Trade

I’ve been making note lately about the “range” between the 1,200 level in the S&P 500 as short-term resistance and 1,175 as the short-term support.

Let’s now step into the futures market—including overnight levels—to see the current structure of the compressed range and what it means for intraday traders right now.

First, the broader 60-min @ES futures structure:


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The broader structure shows us the 1,200 level as important resistance, and the big post-Fed (QE2) “bull trap” along with two mini-bull traps after price broke back under 1,200.

Traps are often labeled “excess” and indicate a market that initially pushed above resistance, but then one of two things failed to occur:

1) Buyers failed to step in and buy the breakout (implying the higher price was deemed “expensive” at the time), or…

2) Short sellers failed to step out and buy back to cover short positions at a loss.

Price breakouts are often fueled by both forces—buyers rushing in and sellers (short) rushing out.

So far, that has not happened—it could, but it hasn’t so far. That’s important to know.

Otherwise…

Buyers have created a floor of support at the 1,170/1,175 level, which happens to be the rising 50-day exponential moving average (EMA) and lower Bollinger Band (higher time frame structure).

It’s now a reference level in its own right, having rejected price declines at least four times as shown above.

Buyers deem the 1,170 level “cheap” (in the short-term), and thus, have stepped in to buy.

Let’s drop now to the 15-minute overnight futures chart for a clearer glimpse:


Click to Enlarge

We see the 1,200 and 1,170/1,175 key levels again, only from a tighter perspective.

The main idea is that there is a disadvantage in trying to trade for anything long term while price remains trapped within these bounds, and a potential advantage—as long as these levels hold—for the short-term traders to play off these ranges.

They will certainly not hold forever, but traders—by their combined actions—have deemed these levels to be important in the short term.

Markets alternate between range contraction (this) and range expansion (a breakout), so we know a breakout is coming, but it’s often best to wait for confirmation of a break instead of trying to outsmart the market and guess the breakout direction until it occurs.

The short-term targets are relatively clear again from a short-term basis:

A) Bullish breakout (that exceeds the recent “traps”) targets a potential play to 1,230

B) Bearish breakout (under 1,170) likely targets the 1,150 level again with a deeper break targeting 1,130.

Depending on your style of trading and experience, I would strongly suggest incorporating these levels into your game plan for expectations of the next likely move, whether it be within the parameters of this price range or outside of them on a breakout move.

By Corey Rosenbloom of AfraidToTrade.com

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