Morning Review 07/07/09

891 broke down as support and became resistance again. The next significant level of support is 882.



The overnight low of 889.50 tried to act as support, but eventually broke down as well. The 0930 ET open acted as resistance on the test of that price level. Once the overnight low of 889.50 broke as support, it then became resistance.

I have talked about $TICK divergences with a few through emails. I find that they work best when testing support or resistance price levels. The divergence that occurred at 1040 ET did give the market a little pop to the upside, but not a significant reversal. The market at that time also was not near any major areas of support.

Using a Bollinger Band on the 1 minute $TICK chart with a 50 period average and 1.5 standard deviation bands, I find that the market starts a correction when the $TICK moves beyond the deviation bands. I suspect that this is where many Market Makers provide liquidity to the market. Many times the market will reverse a point or two after this occurs. Just after 1100 ET as the European market started to unwind their trades, and following the divergence, the $TICK dipped below the lower band (Blue Ellipse). It was at this point that I noticed on the Time and Sales Window that some large trades (+100 contracts) started to enter at the ASK price. The market then bounced two points against the overall trend.

Charles