What You May Have Missed in the Recent Overnight Sessions

Jul 6, 2010: 10:44 AM CST

If you went to sleep last night and checked the stock market futures, you probably thought that today would be yet another down-day.

However, as you slept, the market staged an impressive turn-around to bring us to where we are right now mid-day Tuesday.

It’s a fascinating reversal, and shows us the importance of watching overnight markets if you don’t do that already.

Let’s see the overnight and daily @ES futures (S&P 500 e-mini) chart:


(Click chart for full-size image)

What we see above is the last three trading days in the market (end of last week) in boxes on the chart with the TICK (lower panel) showing us the day session.

Everything else – not in a labeled box – is the respective overnight sessions.

I’m also showing the 3/10 Momentum Oscillator as a reference.

One thing to notice is that price continued its fall, taking out Thursday’s low at the 1,005 futures contract level with an overnight low – around midnight CST – of 1,003.

However, look at the lengthy positive momentum divergence in the 3/10 Oscillator that ‘undercut’ or failed to confirm that recent overnight low.

As America slept, the futures contract rallied sharply to open this morning at the 1,030 level.

If the rally holds and closes today, then the futures contract will show an extraordinarily powerful bullish engulfing daily candle that you won’t see in the daily chart (that won’t take into account the failed spike – or “Finger” – to a new low).

For trivia’s sake, if you want to look ‘inside’ a Bullish Engulfing candle, here is your chance.  Notice how the midnight session took price to a new low which buyers rejected and price has ‘engulfed’ the recent range in a breakout to the upside.

Remember, this is a very bullish turnaround that sent the daily S&P 500 to test the key 1,040 level again.  What happens at 1,040 – as has been the case – is the key to trading the next swing in the market:

bearish bias underneath, bullish bias (especially for popped stops) if above.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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Comments

  • I hope some of you find this helpful.

    http://www.crowderoptions.com/...

  • convictscott

    Corey, as a trader in Australia I pay close attention to the overnight ES session but IMHO it has to be approached in a slightly different way. I havent collected accurate statistics, but from what I have observed the time to watch is from the hour before London open, onwards.

    Strong moves that begin before this time are in my experience suspect and more likely to be head fakes

  • Svet

    Offtopic but figured you would have looked at this - take a look at the 20dma (or 50dma) of the TICK vs the daily SPX. On the 50, the last leg down of the SPX is not confirmed by the TICK and on the 20, the divergence is even longer (note that the 20 appears to be a decent 1-month leading indicator for the SPX daily).

  • TrappedBetween

    could this actually be the Barton Biggs capitulation bottom?

    as much as i would like to see "Biggs the pull string bull" wrong again - it looks like it's playing out as before.

    http://enjoythe4th.blogspot.co...

  • Onlooker from Troy

    Well we got yet another piece of evidence saying that this is a very bearish market that is to be sold into on rallies (rather meek ones), not bought on dips. Couldn't hold the days highs much less the gap up. Seems we may need another lower low before we get a level that will sustain any kind of rally.

    I'm only sorry I didn't short the run up as I thought it would have more to go. The market's leaving both bulls and bears wanting.

  • Agreed.

    My thoughts are that this sort of behavior is further evidence that we are in a new bear market with the final dip under 1,040. Strategy morphs into selling rallies instead of buying dips if that's the case.

  • Onlooker from Troy

    Yep. Wow, that was one nasty intraday reversal. Those who were thoroughly conditioned to buy the dips and the breakouts in the bull run have been run over in the last few months.

    I just wonder how bearish sentiment needs to get to spark a real rally here. And how "oversold" the market indicators need to be. This is nasty.

  • True - if this is a new bear market, we change all definitions - oversold has a new meaning and so does support. As in, in a bear market, there is no support, save temporary bounces.

  • I learned the importance of factoring in non-US session data from trading forex. It makes a big difference in the efficacy of technical systems, and from what I can tell the best trading opportunities happen either early in the Asian session or around the time London opens.

  • Exactly!

    And I don't do that enough - I'll know the levels on the overnight session but not give detailed analytics like I should. Days like this remind me the importance of overnight structure and overseas markets.

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