Not a very compelling picture in either direction, right? The one month range shows a differential of roughly 24 points, and as we speak, the e-SPU is trading at 1236/37, which is right in the middle of the range. So why is our preferred position from the short side? Because if the pattern carved-out since mid-July is a topping process, or a top disguised as a sideways range, then the index should stall in and around the 50% to 66% recovery level on any rally within the range, at which point it should pivot to the downside for a run at the bottom of the range. At this juncture, given the relatively small position, I am taking a very reasonable risk to find out if this pattern is a top or or a continuation. For the time being, we have ourselves a standoff. We will remain short nonetheless.

MJP 8/15/05

Click here to view chart (new browser window will open).

Mike Paulenoff is a 25-year veteran of the financial markets and author of MPTrader.com, a real-time diary of his E-mini S&P and QQQQ technical analysis and trading alerts. For more of Mike Paulenoff, sign up for a FREE 30-Day Trial to his E-Mini/Index Futures diary, or try his QQQ Trading Diary.