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August 1, 2012 / redman59

Structuring the Emini-SP500 into the FOMC Rate Decision

Today we have the FOMC Rate Decision at 2:15.  Looking at the price action today it can be summed up as boring and with good reason, people don’t want to get aggressive.  One instrument I always watch is the emini SP-500 (/ES) on a 30 minute time frame.  I will also note that @chessNwine gives consistent and informative updates on the 30 minute SPY chart.  One reason I like to use the /ES is for the market profile and the fact that futures in general are the first to react to news events.  Going into today I pulled up the /ES on a 20 day chart (preferred for rolling month visual):

Looking at the chart it looks like an awesome bull flag formation.  The volume profile on the right hand side takes into account the volume of the recent 20 days.  Besides the bull flag formation there are several things that concern me about the chart.  There are several gaps to the upside that are also coupled with Naked POC’s.  Both of these (gaps & naked POC) both have a tendency to get filled.  Also looking at the volume profile on the right hand side we can see the that we are above the Value Area High (indicated by higher yellow line).  This can act as support though and I do like that coupled with the bull flag formation.  But another thing that makes for a bear case is that the Point-of-Control (indicated by red line) is at the lower end of the Value Area.  Low volume at the higher end of the Value Area tells me there is not a lot of participation by the longer term traders.

My concern here is that if we break below the current highlighted channel we will also break the Value Area High and put is back into the Value Area.  This coupled with the gaps and the Naked POC theory of them both tending to get filled, I believe we will see more downside.  Also the monthly POC (red line on right) also comes into play with price structure on the chart of looking like a decent support area which would be around 1345.  But a break below that and I believe we see the lower 1330’s again and putting us under the current uptrending channel and trendline that we are above (as highlighted below on daily /ES chart).

It has been said to fade the initial reaction but I have not done any research on that.  Personally I wouldn’t start paying attention to the true move until the last hour of trading…or the last 3 minutes as in yesterday and on a side note, what the hell was that about.  ZeroHedge put out a quick read on what happened, over all its disturbing to see things like this go on, but there sure is nothing I can do about it.

Operation Ivy sums things up with their song “Vulnerability”

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