Friday's Market Minute: Are Equity Indices Topping Out?

Friday’s Market Minute: Are Equity Indices Topping Out?

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Yesterday’s -0.4% fall in the S&P 500 futures contract may have stung bulls a bit, but some giveback shouldn’t be a surprise at this point. /ES hasn’t closed more than 1% lower since June 18th, which was the start of a nearly 5% run-up in which only five trading days of the past 18 were red. Even though the price may feel somewhat precarious at all-time highs, it’s actually on the familiar technical ground near the yearly Linear Regression Line, currently around 4344.

The index spent a great deal of time near this indicator in recent months, so a significant break below this level could provide clues that the uptrend is failing. There are some other signs on the horizon worth watching, such as the RSI showing bearish divergence during Monday’s new all-time high closing price, suggesting weaker momentum as the price rises. Another thing to consider is how relatively light trading has been during much of this move upward, with the spikes happening on down days such as July 8th and yesterday – so be aware and be ready to make quick moves if the situation worsens. Keep an eye on the Parabolic SAR near 4332 and the 21-day Exponential Moving Average near 4305 as other key points of support.

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Feeders in Focus Within Livestock Complex

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AUGUST FEEDER CATTLE:

Over the last week or so, feeder cattle have held up technically better than the live cattle market, although we think the former is living on borrowed time. As one will note on the daily chart, price action of late has retained a sideways to higher trend. In doing so, however, momentum indicators have begun to diverge, setting up a textbook bearish divergence from price. Without a rebound early this week to negate this divergence, we feel price is bound to confirm the bearish divergence in the days and weeks ahead. If the divergence is confirmed, we would expect price to move below the corrective low from last Thursday at $156.75 rather quickly. This would open a retest of the corrective low from July 1 at $152.20. There are a few support candidates along the way to $152.20, which could offer a momentary pause. The 100-day moving average sits at $154.03 while the 50-day moving average is just below at $152.77. The fact the 50-day moving average lines up almost exactly at the July 1 corrective low of $152.20 looks awfully convenient for holding any serious selling assault.

AUGUST LEAN HOGS:

Since our last technical read on the lean hog market on June 21, price action has mainly been consolidating in a sideways trading range. That said, the consolidative nature of trade has also produced a flag formation, which should resolve itself with a breakout in the not-too-distant future. Given the fact this market sold off into the formation, the technical trading manual would suggest it will be resolved with a breakout to the downside. Supporting a continued bearish policy is the most recent Commitments of Traders report from the CFTC. As of July 6, managed funds still held a net-long position of 67,207 contracts. Despite this market having corrected over 16% since peaking in early June, the managed fund long is still almost 70% of the largest net long ever held. That net long in and of itself is not bearish, but if the market would happen to leak lower and challenge additional support candidates, those long positions could become vulnerable. Corrective lows at $98.100 and $96.500 should act as support if sell pressure emerges early in the week.

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.

Tregg Cronin can be reached at tmcronin31@gmail.com

Follow him on Twitter @5thWave_tcronin

Trade Setup: 15,850 level key; market may slip into consolidation below this

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ETMarkets.com

The Indian equity market inched higher on the anticipated lines on Thursday and Nifty marked a fresh lifetime high and closed at its highest level. In Wednesday’s note, we had pointed out that Nifty had made some room for itself to move higher as the maximum Call Open Interest shifted higher to 16,000 level. The market opened on a quiet note, but gradually moved higher and maintained its gains through the day. At close, the headline index ended with a net gain of 70.25 points, or 0.44 per cent.Options data for next week suggests Nifty has visibly shifted its resistance point further higher to 16,200 level, as this strike holds maximum concentration of Call Open Interest at the beginning of the new options week. From the technical perspective, Nifty has increased the chances of a potential resumption of the rise, if it is able to keep its head above 15,850 level. As long as these levels are defended, there is a possibility of incremental rise. A violation of the 15,850 level will see the market slip into consolidation again.While a stable start is expected to the day, the 16,000 and 16,045 levels will act as potential resistance points while supports will come in at 15,850 and 15,810 levels. The trading range is expected to remain wider than usual.The Relative Strength Index (RSI) on the daily chart stood at 62.45 level. It showed a bearish divergence against the price. While the price made a fresh 14-period high, the RSI did not, and this resulted in a bearish divergence. The daily MACD remains bearish and stays below the Signal Line.Pattern analysis showed Nifty marked its previous high of 15,915 a couple of weeks back, and consolidated in a defined range after that. This time, it has marked a fresh incremental high. It would be a test to see if this results in the resumption of the uptrend following a sideways consolidation.All in all, there are possibilities of some resumption in the upward move. However, for this to happen, it would be crucial for Nifty to keep its head above 15,850 level. As long as this level is defended, we may see some more upside. On the other hand, if the 15,850 level is violated, then the market may slip into consolidation again. As we follow the trend, we must not forget that the internal strength and the market breadth remain weak and not as much strong as it should be. Because of this, traders should keep trailing stop losses as they follow the momentum and keep protecting profits at higher levels.(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)

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