ES Trading Roadmap

(click on chart to enlarge)

The chart above is a close-up of the VST trading channel at the close on 12/31/09.

The ES top spotter signal was confirmed at the close and the top spotter signal line has now been moved to 1128.50 and serves as a hard stop for the present bearish setup.  It is important to note, that if that line at 1128.50 is exceeded at any time, then the present bearish setup is immediately voided.  Top Spotters are either the exact swing top, or they aren’t—there is no gray area and the other side of that line is definitely no place to hold and hope (for bears) if it is exceeded…as a reversed spotter signal becomes a powerful trend continuation buy signal.

The red trendline from the high delineates the top boundary of the present fledgling VST downtrend channel, and can serve as a place to apply protective stops for any VST short trades.

The blue triangle in the chart above is where a bullish breakout occurred on 12/22/09.  The low on 12/31/09 bounced exactly at that line, and may have been simply a back test of that triangle breakout.  If that back test were to hold, then it could become a bullish foothold for another run at the recent high.  That blue trendline support, along with the red VST trendline resistance, will be the very first things to watch as the futures open in the New Year.

The dashed black trendline on the chart represents short-term trendline support as shown on a recent weekly chart post at:

That line is roughly equivalent to the current stop/reversal line from Stops and Targets for the short-term timeframe.  A break and hold below that line would flip the short-term trend from bullish to bearish.

Spotter setups have a typical first target of ST primary trend support—which is where powerful up-trends will often bounce.

I will be watching the red and blue trendlines for first clues and then looking to the spotter at 1128.50 or the current ST stop/reversal line at 1107.25 as secondary clues for the potential start of a new trending move.

Happy New Year