With both summer and earnings season now in full swing, it may be a good time to review the current state of the benchmark US indices, namely the ES, NQ and YM. For non futures traders these are the e-mini equivalents of the cash indices for the S&P 500, the NASDAQ and the Dow respectively.
Starting with the YM, what is particularly interesting and noteworthy is that in late June and early July it was the NQ that was leading, with the others following. In the past few days we have seen a complete shift and role reversal with the YM now leading whilst the NQ and ES move into a phase of consolidation.
From a correlation perspective it is certainly true that the NQ and ES will tend to follow one another more closely given the broader basket of stocks which comprise these indices. The Dow, of course, is driven by only 30 stocks, many of which generate a substantial proportion of their revenue from overseas, and therefore like the FTSE 100 in the UK, are much less a bellwether for the national economy and more reflective of global conditions.
From a technical perspective, the YM has finally broken through the 17,000 price point on the daily chart, with yesterday’s price action closing well above, at 17057, and building on the strong platform of support now in place at this psychological level. Volumes in yesterday’s session were at par, confirming the relatively narrow spread of the price action, suggesting further upside gains to come.
Moving to the NQ, this has now moved into an extended phase of consolidation with the floor of price support now firmly in place at 3860 whilst the ceiling is being constantly tested at the 3930 price region. So far this month the NQ has been building a rising triangle with the classical flat top and higher lows to the underside, both suggesting a breakout in due course, and any move through 3950 will confirm that bullish sentiment is maintained.
Of the three major reversals in July, each was fully supported by buying volume clearly evidenced by both the level of volume and also the depth of the lower wicks to the associated candles. This is simply evidence of the bulls coming in to support this price level.
Finally moving to the ES, the technical picture here is almost identical to the NQ with a consolidation phase now in progress and a resistance level in place at 1980. Again, volumes under the down candles confirm strong buying and it is only a question of time before this index too joins the others in moving firmly higher to test the 2000 level in due course.
No analysis of the indices would be complete without consideration of the VIX which, despite the spike higher of 10th July that saw it briefly breach the 13 price point, is now firmly back into its downward trend. Should the 10.20 be broken, then single figures will not be far away.
Finally, the burning question: When these leading indices start the long heralded correction? As always, it will be price action and volume which will send the clearest signals. To date there is no evidence of either major distribution or a selling climax, which would be precursors to a major fall.