Rejected At The Flash Crash Lows

Posted on May 21, 2010 by Chuck Kowalski

It was no surprise on Thursday that the market would retest the flash crash lows, but the question is whether it would pass or fail.  Thus far, it has passed. 

The market basically opened below the flash crash lows and moved higher from there.  This market loves to reverse at previous lows and Friday was no exception.  Somebody wanted to buy on a break of this low and everyone else piled on when there was no follow-through to the downside. 

You can see the long 5-minute bar that was the second bar of the trading session.  That sent the tone for the day as the bargain hunters must have seen some value here.  There were some caution signs for the bears as the dollar has been fairly weak the last couple days and gold also traded lower.  That was a good hint there wouldn’t be much follow-through today on a break of support. 

Now, where do we go from here?

You have to play the rejection of a break of a major support level.  I’m still negative on the overall market, but the momentum could shift to the upside for a few days.  Will the market put in a major double bottom or will the market consolidate and form a descending triangle?  Anything is possible with this market, but the bulls are in charge of their destiny right now.

I might adopt a more bullish bias for daytrading purposes until the lows are violated.  A break below 1,051 on the S&P should signal much lower prices ahead.  I will be curious to see what type of follow-through there is if the market takes out the highs from Friday.

Filed Under: E-mini Stock Futures

Comments are closed.