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Brian's Monday recap: Korea and oil, Asia weakness, a Pit Bull S&P rule

Brian Shepard

It will be escalated with the DPRK shutting a joint factory complex with the south at Kaesong. This is one of the few sources of foreign currency. The angst took a jump when the U.S. flew over a disputed island that both countries claim. The stealth bombers flew in and dropped a dummy payload. It was a gentle reminder that the North is not a viable adversary. The bombers took off from the mainland U.S. also as a show of power projection.

The egregious theft that has become known as the Cypriot bailout now threatens depositors with even larger losses than were seen last week. On Saturday there was an announcement of the new rescue package. It rescues the ECB and the northern states, but does nothing for unsuspecting depositors. Under the conditions, depositors in the Bank of Cyprus will get shares in the bank worth 37.5 percent of the deposits over €100,000. How this instills faith in European banks is a work for Ionesco’s Theater of the Absurd. Headline risk will abound. Oh, it should be mentioned that the remainder of the funds on deposit will receive shares in the troubled bank they have money with. In essence there is a 100 percent loss, they are just not calling it that. Stanton Analytics.

Collective Intelligence! The Far East responded to less than expected data reports out of Japan and China as a pretext for profit-taking in the energy complex. Trading will be thinner as most of Europe is closed for Easter Monday. While China’s PMI bounced in March, the measure of factory output failed to meet analysts’ expectation. It rose to an 11-month high of 50.9, but below the estimate of 52.0. Japan’s Tankan report showed a continued slowdown in their economy.

Don’t miss this guy > @princetontrader aka Mike V posted his pivots http://t.co/vPgo6KVwfb webcast http://t.co/q6yYV9EBHo At (08:47CT) Mike posted his vol windows ES: 1568.50 x 1557.75 and NQ: 2822.75 x 2804.25. Lower level and 3 dayer here 1557.75

Kathy has had some very good calls too! Charts posted by Kathy Garber @tbg4321. Harmonic rotations ES http://screencast.com/t/Zv6xUHiZ CL http://screencast.com/t/gxAXjFYqTfR TF has pattern PRZ target 926.2 w/ scaling point 931.6 http://screencast.com/t/WzNZilO36z5F CL testing initial key resistance at 96.63, price in small emerging ABCD, tgts 96.9, 97.07 & 97.29, these can help form the next leg of emerging pattern derived from new blue triangle http://screencast.com/t/Xd08Bv40

During the Globex session 85k ESM and 500 SPM traded on Globex, trading range was 1563.80 – 1559.40. Friday’s regular trading hours (RTH’s), pit session trading range was 1564.30 – 1555.00 before settling at 1562.70, up 5.9 handles. The overnight volumes were very light as most of the European markets were on holiday. The opening imbalance showed an overall $183.76M x $338.71M, a small $155M to the sell side.

Today’s SPM regular trading hours (RTH’s) opening range was 1561.50 – 1562.00, traded up to 1564.60 before the ISM data knocked the bulls off stride. At 9:00CT the ISM data checked in at 51.3 versus expectations of 54.2 and several small sell programs followed. On the release, the SPM traded down from 1563 area 10 1558 before retesting / rejected from the opening range. By (09:07) iShares Small Cap Fund [IWM] was off 14 cents to $94.29 and a May 93 - 96 put spread was bought on the ETF for $1.30, 10,000 times. The 96 leg, which is already $1.71 in-the-money, looks opening. So, the spread might be a new position or possibly rolling up in strikes. At (09:09) Jim posted; break > it would show the 1556 maybe down to 54+ area and mts2 agreed w/ 1554 area sup, but we have 1558 area above that. At 10:01 the daily low of 1553.30 printed before the sideways to higher traded kicked in - in holiday type volume. At (11:39) William Blount posted; 1553 is a SPOT- A BIG ARSE SPOT -- if the bears keep dripping water on it, it breaks--more passes, the weaker it gets-- as in the GANN RULE OF 4 since triple bottoms and tops are hens teeth.

At 12:00 1557 area was trading in quiet fashion and by 12:30 the SPM was retesting that 1558.00 -1558.50 area low following the ISM data release. For the next hour and a half the SPM traded around the 1556 to 1557 area and just after 2:00 the index got hit by several small sell programs that pushed the futures back down to a new low at 1552.80 around 2:20 CT. If you follow the Pit Bull rule about closing in the direction the S&P starts out, that’s what we are seeing. After a small uptick the SPM sold off and made a new low by 1 tick at 1552.70. The SPM was trading the 1554.00 area when the 2:45 closing imbalance showed the broader market with $1.1bil to BUY. On the 3:00 cash close the SPM traded 1556 area before settling at 1555.90, down 6.8 handles on the 3:15 futures close.

Brian Shepard is a 20-year exchange member of the CME Group.

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