Make or Break for the E-mini?

Truth be told, I haven’t really believed in the move higher, even though it has covered a lot of upside ground in the last week and change. Part of my reluctance to embrace the move may have to do with resentment that I’m not longer (although I am small net long). Intellectual honesty is helpful in trading, however, and I have to acknowledge that the market had a host of reasons to roll over today, and refused to do so.

For starters, Chinese imports and exports for September, which were released last night,  while strong, continued the slowing trend that has been evident for a while. The European bank recapitalization plan offered by European Commission President Barroso was generally judged to be a poor solution to the wrong problem. Jobless claims continued above 400k, which has become the over/under for the market. The Dollar was up for a good part of the morning, and commodities, including precious metals, were under pressure. People have had plenty of time to get long, and I don’t know anyone who isn’t anxious about preserving hard-won profits.

And yet, given all of these potential negatives, there was no followthrough to speak of when the first half hour breakout took place to the downside, and the market, after a rough morning, held in and even came higher in the course of the afternoon. It wasn’t much of a day, in terms of net movement, but I would count that as a victory for the bulls, particularly this close to resistance.

The question now is whether on a Friday the market can punch through the resistance around 1215 and put it firmly in the rear view mirror. We’ve moved back into the moving averages on the daily E-mini chart, which remains in a downtrend in this time frame, and I would ordinarily look for a place to sell.  Today’s price action, however, forms an inside vertical bar. Todd notes both in his study materials and frequently in his daily updates that inside vertical bars are potentially important indicators; the side that is broken first tends to point to continued movement in that direction. Like all indicators, it isn’t infallible, but it’s certainly worth paying attention to.

Since on the daily chart we’re up in the moving averages, and around the 50% Fibonacci retracement level, my inclination would be to attempt to short the market, in the expectation that if nothing else, profit taking prior to the weekend will be helpful. If the bottom of today’s inside vertical bar is taken out first, I’ll be much more confident about taking that trade. I’ll still be keeping a careful eye on it, and if the previous high is broken, I’ll be out of any shorts and perhaps even looking to join in if the push higher has some conviction behind it.

P.S. Prior to the opening, it certainly looks as though it will be “make”.  A decent report from GOOG and optimism that the “BRIC” countries (Brazil, India, China) will offer significant sums to the IMF to help support Italy and Spain are going to give us a strong opening. The most recent high on the hourly was 1216, and I would assume that there are some buy stops just above that level, so that a break could gain some additional momentum. As I noted last night, I was more inclined to try to sell into early strength, but Mom always warned me against standing in front of oncoming trains.  Best of luck today.