Thursday Prep

Going into yesterday I mentioned in the prep that: Clearly the more the 60.50-62.25 zone (IS) gets hit the weaker it becomes and the more likely we see the market auction down through to the other side of the current range, though I would still be looking for reactions at the lower zones (dependent on market state/context). We ended up seeing that unfold with very negative market internals early on, which was a warning sign to not try catching every falling knife.

The move down to the other side of the range, clearer on the hourly continuous chart, shows a head and shoulders pattern in technical analysis terms. The break of the initial support zone (see bottom chart) was accompanied by very weak stock momentum. Broken support becomes resistance until proved otherwise. This effectively was a balance breakdown trapping short term longs from the prior few days.

The test of the 42.00-44.25 range support zone was the only valid area to get long in the face of such weak internals in the morning. This gave the best expectancy outcome being a first test of the range. The shift of momentum in the afternoon and acceptance back above the mid and vwap were warnings not to fade the rally. If the sell-off had been meaningful it's much less likely to see a move above those areas.

Overnight the range is so far 2556.25-63.25 versus settlement at 58.50. The ECB has kept rates at 0% and will continue QE at €30 (half the current rate) for the first 9 months of 2018. So far bonds and equities have reacted positively to the news. 2563.50 is the VPOC of the current week. 

The market's now trading in the middle of the range of the past week, so we're in neutral territory within a longer term bullish trend. Zones of interest for today are below.