I’ve been making note lately about the “range” between the 1,200 level in the S&P 500 as short-term resistance and 1,175 as the short-term support.

Let’s now step into the futures market – including overnight levels – to see the current structure of the compressed range and what it means for intraday traders right now.

First, the broader 60-min @ES Futures Structure:

(Click for full-size image)

The broader structure shows us the 1,200 level as important resistance, and the big Post-Fed (QE2) “Bull Trap” along with two mini-bull traps after price broke back under 1,200.

Traps are often labeled “Excess” and indicate a market that initially pushed above resistance but then one of two things failed to occur:

A)  Buyers FAILED to step-in and buy the breakout (implying the higher price was deemed “expensive” at the time)

B)  Short-sellers FAILED to step OUT and buy-back to cover short-positions at a loss.

Price breakouts are often fueled by both forces – buyers rushing in and sellers (short) rushing out.

So far, that has not happened – it could, but it’s not occurred so far.  That’s important to know.

OTHERWISE

Buyers have created a floor of support at the 1,170/1,175 level, which happens to be the rising 50 day EMA and lower Bollinger Band (higher timeframe structure).

It’s now a reference level in its own right, having “rejected” price declines at least four times as shown above.

Buyers deem the 1,170 level “cheap” (short-term) and thus have stepped in to buy.

Let’s drop now to the 15-min overnight futures chart for a clearer glimpse:

(click for full-size image)

We see the 1,200 and 1,170/1,175 key levels again but from a tighter perspective.

The main idea is that there is a disadvantage at trying to trade for anything long-term while price remains trapped within these bounds, and a potential advantage – as long as these levels hold – for the short-term traders to play off these ranges.

They will certainly not hold forever, but traders – by their combined actions -have deemed these levels to be important in the short-term.

Markets alternate between Range Contraction (this) and Range Expansion (a breakout) – so we know a breakout is coming, but it’s often best to wait for confirmation of a break instead of trying to outsmart the market and guess the breakout direction until it occurs.

The short-term targets are relatively clear again from a short-term basis as I’ve been saying in the member reports:

A) Bullish Breakout (that exceeds the recent ‘traps’) targets a potential play to 1,230

B)  Bearish Breakout (under 1,170) likely targets the 1,150 level again with a deeper break targeting 1,130.

Depending on your style of trading and experience, I would strongly suggest incorporating these levels into your game plan for expectations of the next likely move – whether it be within the parameters of this price range… or outside of them on a breakout move.

Corey Rosenbloom, CMT
Afraid to Trade.com

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