Sunday, August 24, 2008

Weeky Outlook on ES 25th to 29th Aug '08

Dominant TF: 60mins, weekly
Swings: UP-UP-DN (from UP-UP-UP) Weekly swing may be a little hesitant
Market Direction(daily): long, with tighter stops

Please also read ER2 post below for guidance.

To be honest, we saw ES weakening around 1300 but wasn't showing signs of retracing 35 points by mid-week. The overall picture is nonetheless the same with a volatile upper trend, partly explained by Aug derivatives expiry. The end of the week took ES about where it started and is now in better shape. We'll obviously follow EURUSD and oil prices as proxies for the general economic context, even if correlation has decreased lately.

60mins: recovery to latest highs.
MTFS is indeed clearly indicating a willingness to test recent highs again. Entropy however seems to indicate a forthcoming peak hence some difficulty to take ES higher in the short term. We'll have to wait a little to see the situation develop.

Daily: same weaker trend
Last week, i indicated that a retracement was possible without any significant change in our outlook. Entropy is now even weaker so ES may here again have trouble passing last highs and could therefore enter a congestion period. One should however hang on with out tighter stops and just wait even if this doesn't look like a quick money-making position. Obviously this is not the dominant time frame so some may also want to take profits near range highs and wait for a better looking pattern.

Weekly: Again, worst is over but...
Virtually no change from last week.
Now that we've seen support holding, we have been looking for a recovery potential, but it appears it will start on a slow note.
Compared to last week, only the MTFS crossover looks a bit more positive. This does not change our outlook in the least as such crossovers generally provide little recovery potential. A congestion or limited upper bias remains our favourite scenario. The good thing is that recent lows may prove to be a definite support level, allowing a recovery later on, no matter how slow...