Games of 3

Every once in a while, I notice a few things in the market that make me go "uummm." For example, the other day on the rally out of the 1070s for the S&P 500, we saw a big drop in cash money flow around 1084 but a surge in the index futures that kept the market from falling - and instead goosed it pass resistance at 1090 and up towards the 1100 level. The "surge" in the futures pits was a bunch of dealers buying and this pushed the locals to raise prices - never mind that the broad market was actually going the other way! This type of activity occurs all the time but it is never so blatant...but alas, it is August - a period where the rookies are running the desk and the pros are on vacation.

Another interesting development is the pivot of 1090 in the SPUs. Over the last 2 days, in looking at the 5 minute chart, it has served as a point to place one's stops - that is right above 1090 to buy and right below 1090 to sell. The dive late yesterday was quick and efficient once 1090 was taken out. Earlier we had a dive and a rally. And before that a rally followed by that aforementioned dive. This morning we had a slight change in the behavior. Some cowboy(s) decided to run this higher on the close of Japan at 2am (don't ask me why I was up). The market climbed through 1090 but was met with sellers at 1092 and proceeded to break thru 1090 and dive to 1086. Around 6am the 'boys were back making another run higher to 1092 yet again.

The last thing that makes me go hmm, revolves around buying power. Yesterday and the day before the market zoomed to the highs on heavy volume only to be met with broadening top formations - distribution if you will. Each time my momentum indicator was registering a 140 which is absurdly high on the daily chart but symbolic of strong pushes with a 30 minute perspective. Generally with the former, you get a top and a market correction; with the latter we get a high momentum burst to the upside. What we got was the daily character influencing the 30 minute trade which while a rare occurrence, it is not something that can't happen as a result. But when it does, it has a message: August of 2010 will be a tough one for the bulls. There is just not enough firepower to the upside and no shortage of sellers.

So let's bring these thoughts together. Institutional buying around 1085; 1090 seems to be the revolving door for the trade; and 1100 seems to be the point where the short term guys buy but the point where the institutions are selling. Thus one very tight trading range. My guess is that the move for the fall will be determined largely from what happens in this area - a break above and the bull resumes or a fall below and the sellers pile on. Till then, game on!