An Updated Look at the Daily Chart of the YM Emini Futures - Sunday March 7, 2010

We are at a crucial area for the U.S. Stock Market. Focusing on the YM we made a high for the year on 1/19/2010 at 10687 followed by a Three Black Crows formation on the daily chart that took us down to 10111. In those three days we erased all the gains made since 11/09/09. Since the Three Black Crows pattern we have formed an inverted head and shoulders on the daily chart that has a target of 10817. This target, if hit, would take the YM to new highs for the year.

On Friday March 5, 2010 we broke out in price on every index and over the neckline of the Inv H&S on the S&P 500, SPY, ES and OEX (my leading index). The YM/Dow Cash/ DIA have a more slanted up neckline so while price broke out – it did not snap the neckline convincingly on the YM. At any rate Friday was a breakout but it lacked one key thing – VOLUME. Simply, there was none. Not the type you want to see on a breakout like this anyway.

Backtrack for a minute: After we made the Three Black Crows on 1/24/2010 I did a blog post updating the daily chart. In that post I said: "I do not expect the YM to get back over 10566. I will be targeting 10309 – 10430 for swing shorts." The first time up to that zone YM hit a high of 10434 and then sold off to 10172. However since it took so long (a month) for us to even test this area again when we got back to it I was expecting a little higher and labeled the new zone as 10470 – 10560. This is the area I have been wanting for swing shorts. Friday we hit 10561 on the dot and sold off (albeit only 24 pts). Nevertheless we are in the key zone I have been expecting.

So where do we go from here and what will I be keying on? I can see three potential scenarios playing out:

A. Futures open on Sunday and sell immediately. We open the cash session Monday well off the Friday close (near the highs) and keep selling. Reversal is on.

B. Monday we make a doji type day. Tuesday we reverse down for an Abandoned Baby or Evening Star formation. This scenario seems most likely for the bearish case.

C. Price goes and hits the 10817 Inv H&S target on the YM. Most likely the weekly chart would have negative divergence and this would be a shortable target hit.

Right now I am positioned nicely short in my 10470 – 10560 range and am anticipating Scenario B (or similar – a reversal in this area with no new high being made) playing out. If we are going to go make new highs (Scenario C) there needs to be an influx of volume to the upside. I will be keying on two things that could potentially take me out of my swing short positions: A move over the yearly high at 10687 or a close on the daily chart over 10625. Until one of those two things happens I am happily swing short. Because this week is crucial and things should happen fast from here I will most likely do another daily chart update within the next few days.

Also please remember the paragraph in the original October 25th daily chart update which is worth repeating here: Keep in mind that money in trading is made not by being right in your predictions but by being on the right side of the price action. This is just what I see happening. It could or could not happen. I will not try to force my will on the market. The best traders I know don't care what the market is going to do...they just know what THEY are going to do if the market does A or if the market does B. Much better to be prepared to act on what the market does than to try to predict what it is going to do. All that being said the above is my forecast of how I see price action playing out from here.