ES Recap & Preparation
Overnight the BoJ have surprised the market by increasing their QE program. They intend to buy 60% more bonds and triple their equity purchases. The second surprise came from the Japanese Government Pension Investment Fund which will increase it's allocation to stocks to 50%; half domestic and half foreign. This has stuck a rocket under stocks, with the Nikkei up nearly 5% at the close and the ES breaking through the all time high briefly touching 2016.75. $:Y dropped to nearly 111.
First, lets look at what happened yesterday. The overnight market was weak, and dipped down to the gap left from Monday's high to Tuesday's low. Buyers took control until late in the day when there was a heavy break retracing 50% of the pit session but found responsive buyers into the close back up to the VPOC. There were exchange issues at lunchtime in stocks and options, and a breakout on the ES saw a record 15,000 contracts trade in 1 second followed by a few seconds of almost zero liquidity...not ideal! Volume was reasonable on the day at nearly 2 million contracts.
The overnight move is likely to leave a decent gap when the cash market opens. The larger the gap, the less likely it will fill that day. If, however, the gap is modest then opportunities to get long at yesterdays high and/or settlement would be favourable.
The overnight range at time of writing is 1986.75 - 2016.75, with most of the trade between 2004-2014.
Any shorts still in the market will be forced to cover and exacerbate the move. I don't intent to try and fade this move at all, just look for pullbacks to jump on board today.
Longer timeframe measured upside moves with this breakout are 2069.25 and 2139.00 based on the 127.2% and 161.8% fib retracements of the 2014.50 to 1813.00 swing.
The area between 1990 and above is light in terms of volume, so we may see some back and fill into this area before a continued rally.
The first measured target above the 2014.50 high is 2024.75 This is a simple 100% A-B:C-D wave projection:
