Better bounce tomorrow or it could be curtains.
By my own definition, a pause day is a +/- 50pt day. Today’s action does not qualify. The simple answer to why the markets sold off today is that there was no progress on the fiscal cliff negotiations, but there may be more to it. There is still the specter of capital gains tax increases and the possibility that selling to prevent these higher taxes will dominate market action from here through the end of the world or the end of the year, which ever comes first. Plus, we are headed into holiday trading and though this generally favors the upside, last year the markets were essentially flat from 12/19 through end of of trading on 12/31. The wild card is fiscal cliff negotiations which are going nowhere right now and I guess the uncertainty of such a deal was part of the reason for today’s sell off so obviously if we get some good news between now and Friday by 4:00pm then we’re off like a rocket for at least a day.
Chart of ES in the 5min time frame. Pretty interesting stuff all day. I ended the day after one trade, which just paid for the commission on that trade. After that I sat on my hands because I did not like the action. Anyhoo, just wanted to show the chart I was looking at with the DOM, or depth of market, on the left and the reason I’m doing this is because at 3:45:47pm someone hit the Bid with 1000 contracts at 1436.25. I didn’t actually see it happen but I did see it on the time and sales stream. At the time, there must have been over 1000 contracts sitting on the Bid waiting for the price to come to them and then, boooooom, most of them got filled. In the short time that I’ve been trading the ES, this is the largest number of contracts I’ve ever seen go through at one price. Anyway, this clearly spooked the market as all the players realized that someone with very deep pockets was heading to the cheap seats. You can see how, in the minutes that followed, the market dropped like a rock through the rising trend line that I was watching. Also, that huge, red volume bar is for 68K contracts. That is the largest number of contracts sold during today’s session and it says that the Pro’s were selling the close and this is never a good thing.
GL & be careful.