ES Update

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Yesterday’s futures move on a sustained buy program appears to have been the mirror image to the last sustained sell program that was run on May 20th.  The minimum objective likely was to run all bears who entered on the break below 1104 on May 20th (see red arrow on chart on that date) back to their stops–and that minimum objective has now been accomplished.

Yesterday I posted a target at 1107 on the chart, which was hit this morning and price is presently hovering just below. That line can serve as an early intraday bull/bear line today.

Stops and targets defines the present macro trend for ES as follows:
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E-Mini S&P 500 Futures Option [Jun 10] is rated Bear 3, the second stage of an intermediate pullback within the context of a long-term bull market.  The number that must be taken out to move to the next level of bearishness is long-term trend support at 1,083.00.  In a continuing long-term bull market, buyers will typically step in at or near that number—but in a strong reversal sell-off that long-term support will eventually fail as sellers anticipating lower prices and the start of a long-term bear market emerge.
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The 1083 hard deck lines up nicely with the light gray VST support trendline that I have drawn in on the chart above.  VST bull stops are likely just under there and that is the first objective that bears would have to take to start to turn this back down.

Big profits have been locked in on bearish partials for S&T ideal trades over the past few days and the way that the trend following game works is to just continue peeling back layers to take profits as new cover signals are generated by S&T, but to put the trending trades right back on when the trend reasserts.  The core positions ride the countertrend rallies/pullbacks until the primary trend lines are stopped and reversed.

IT trend is down < 1140
ST trend is down < 1121
LT trend is up > 1083

Intraday VST bull/bear line is at 1107 and the countertrend rally continues in IT and ST above 1083 with the LT stop/reverse sitting at that same line.  As the S&T multitrend rating paragraph points out—the big picture all continues to hinge around that LT primary support trendline.

…my .02
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I had a request yesterday to please explain what I meant when I said that ‘the LT primary trend channel remains intact from a weekly bar perspective’.

The chart above shows a weekly bar chart with the LT trident channel drawn in dark green.  The recent low was nearly a direct hit on the bottom channel line (though it was slightly exceeded on the more finely tuned intraday chart).

The weekly chart points out the current bull case nicely, in that we are seeing a rally after a pullback to the bottom of the trident channel and that lines up with the S&T assessment of Bear 3 as shown above.

So long as those recent lows remain intact, the weekly bar picture remains bullish.

VST Trendline Back Kiss

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The light gray trendline on the chart above does a good job of representing the current VST intraday push…

I mentioned that initial breakout yesterday and used that number, in part, to place the intraday VST bull/bear line.

They went to 1088.75, as expected, but then sold it off—and as it turns out, the same light gray trendline served as a target for a back-kiss of that trendline.  A ‘back kiss’, is what I call a breakout and then reversal back toward the broken trendline where a bounce in the direction of the breakout occurs.  A ‘back kiss’ is a technical move that is designed to shake out virtually all momentum players who buy a trendline breakout and then set break-even stops.

That big overnight move (for US traders) has taken ES right back up to the stop area I mentioned yesterday just above 1088.75 and that jam almost certainly took out any bears who chased the move down to the back kiss yesterday—so it was a very clever and effective ploy by the pros.

Using trendlines to describe the current setup–the VST timeframe is now bumping into the LT timeframe, as I type.  The LT timeframe is represented by the S&T primary trend line and by the first red descending trendline.  If a breakout occurs at that trendline, then the VST bulls will have achieved their first support foothold at the 1088 area.  That would be the first trend to officially flip if it happens, and some bears would start to cover at the same time as long term players start to reestablish positions on the speculation that the long term trident channel is holding, which could bring in additional buying pressure.

On the other hand—if the overnight move ends up being nothing more than a stop raid above 1088.75, then we could see a stop sweep reversal from that line.

Since there is a (unconfirmed) spotter setup on ES, I have added a preliminary VST trident channel (dark green) that could describe the initial bullish push, should that spotter confirm (on a close above 1075).

The S&T long-term (which is the timeframe currently ‘in play’) primary trend line has done what it is designed to do, and that is to point out the volatility zone ahead of the next trending move.  If one steps back and looks at that long-term primary trend line—it has been repulsing all the bullish countertrend rallies from below thus far, and so the consolidation, one infers, has been selling at/near that line.  We have another poke above that line, at present, and the VST bulls are trying to turn this around—but a move back under that line is bearish.

The key line now is play is at 1088.75 that I mentioned yesterday.  A breakout above and hold is a victory for bulls—and could ignite buying, as described earlier…but a rejection after a stop run with a push back down through the LT primary trend line could set off another round of selling.

Intraday price action is bearish below 1088.75 and bullish above, in my opinion.

…my.02

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PS

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VST Rally Underway

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There is a VST rally underway from the stop sweep reversal play under 1051.25 that I pointed out yesterday.  The first upside objective was the long-term stop/reversal line at 1083, which is where price is currently hovering.

I have moved the intraday VST bull/bear line to 1070.50, which was the gap fill yesterday.  The line also aligns with a minor trendline breakout.  That line should provide a good countertrend trailing stop if this turns back down.

The long-term primary trendline is in play here and today’s close may be significant from two standpoints…

1) A trending LT (long-term) bear market will eventually break south and leave the primary trend line behind.  A close above that line is bullish in that it opens up the possibility of a rally higher off the long-term buy.

2) Yesterday, there was a spotter alert setup in the ES and SPX cash markets.  The confirmation for that signal would be a daily bar close above yesterday’s high at 1074.75.

There are two key lines to watch intraday (in my opinion)—the VST bull/bear line at 1070.50 below, and the dotted blue line at 1088.75.  Those two lines provide markers on either side of the long-term primary trendline at 1083 and are one method of fine-tuning the volatility around that very important line…

If the VST rally continues higher—a break and hold above 1088.75 would give bulls their first VST support foothold.  There are likely bear stops resting just above that line and a raid there could produce either another stop sweep reversal back down—or a slingshot toward the first red trendline and the next set of bullish objectives just above.  If price gets to 1088.75, that line would become the new intraday VST bull/bear line.

If the rally is turned back, and 1070.50 is taken out below, then we could see a sell-off back down to test the 1051 area again–and that VST bull/bear line might be a good spot to reestablish bearish partials.

VST bulls have the early momentum here, so let’s see what they do with 1088.75 if/when it gets there.

…my .02

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-swinger

ES Update 5/25/10

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Yesterday’s VST bull/bear line at 1088.75 was the high tick for the session and the current low of the overnight session is just short of the next downside target (an open gap) at 1035.25.

That low also stopped just short of challenging the February low of 1036—under which will set up the first long-term lower low and break the last structural underpinning of the bull market.

That >50 point move since my last post was what I was warning about yesterday for those who might have been tempted to front run a spotter confirmation in a Bear 4 market.  The high of the session stopped right at what would have been the confirmation on close line and the subsequent selling took out the initial signal bar low at 1051.25–so that unconfirmed spotter signal is dead.

Today we have the potential for a stop sweep reversal play under 1051, so I have placed the VST bull/bear line at 1054.  A stop sweep reversal is set up after a flush below a key pivot when the stops have been taken and professional bears start to cover partial positions, which creates buying pressure.  This flush took out the last support trendline and a key VST low, so there is some potential here for a countertrend move of unknown magnitude.  That was a demoralizing move for the bulls and a big payday for the bears (yay!), and so the groundwork may be set for a countertrend rally—but only if price can climb back above 1054 and accelerate higher on momentum buying/short-covering.

On the chart above there is a descending purple trendline coming into view as the next target lower under the gap at 1053.  That purple line is the trident channel lower rail from the initial IT trident that I set right after the top spotters confirmed at 1216.75.  That line may be an eventual lower target for this leg—but first things first, and that is dealing with the reaction after the bears kicked open the trap door (last support trendline) and raided the goodies just underneath.

If this is the start of a long-term bear market then the ES should not close again above LT primary trend resistance which is currently located at 1083.  Sometimes there can be false starts—but we’ll know when the LT trend is set if that primary trend line goes unchallenged.  Bears have had a great run here from the top—but eventually there is going to be a snap back rally.  First line of VST bearish defense is at 1051-1054 area today (the VST bull/bear line location).

I mentioned the 1036 February low above—and that is a key number since it defines LT pivot support on many automated trading systems.  If it is taken out, then those systems are going to trigger LT sells.  That could be the eventual downside target for the pros from the top before covering anything significant and we could even see a stop sweep reversal play from there–possibly off that lower purple rail—but we’ll deal with that situation if/when it comes.

Today’s VST bull/bear line is at 1054 and intraday price action is bearish below and bullish above.

LT trend is down < 1083
IT trend is down < 1146
ST trend is down < 1135

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By request from several private messages I have received recently, I have included a second chart above showing the last time that the market was rated Bear 4 on the Stops and Targets multitrend rating system and also showing all spotter signals around that time—both unconfirmed and confirmed that were issued by S&T…

The yellow rectangle shows the last Bear 4 rating period, which was between July and November of 2007 at the all-time highs.

The aqua blue dots show where bottom spotter alerts were triggered and the magenta dots show where top spotter alerts were triggered.

Blue arrows show confirmed bottom spotters and red arrows show confirmed top spotters.  As you can see from the chart—spotter signals are incredibly helpful when confirmed and are nearly flawless at selecting key swing tops and bottoms…but you have to take them in context with the trending nature of the markets.  You can expect to see a number of unconfirmed bottom spotters in a falling market that will be invalidated—just as we saw unconfirmed top spotter signals invalidated in a rising market.  The key is to always wait for confirmation, and that is what I was stressing in yesterday’s post.

Countertrend trading is the downfall of most traders.  It holds the most allure because of the speed of the moves–and the most danger.  Spotter signals are countertrend warnings of what might happen…but the trends themselves are what really matter and S&T is set up to hammer that message home.  Spotter signals can be used in many more ways than to just fade a trend—they also can be used as powerful trend continuation signals and those categories are clearly shown in the Signals Matrix each day.

…my .02