(click on images to enlarge charts)
Yesterday’s sell-off is what I have been warning about since ES crossed under long-term primary trend support at 1079.50. There simply was no good reason to be long under that line, and so the path of least resistance was down–and the February low target that I mentioned yesterday was where it went.
The ES low on February 5, 2010 was 1031.75, and that is a very important number. That price print has served as a structural low for the long-term timeframe and was the last technical underpinning of the bullish up-thrust from the March 2009 bottom.
Yesterday’s low of 1030.25 just slightly undercut that low. That poke under the line triggered an increased number of unusual volume alerts in the Stops and Targets Signal Matrix under the single day stats tab. The number of alerts was definitely elevated, but not yet eye-popping, as I assume it might be if we get a daily bar close under yesterday’s low to confirm the break.
The low yesterday also invalidated the interim bottom spotter signal on ES and reinstated the prevailing top-spotter from 4/26 at 1212.50.
My assertion all along is that this has been an intermediate term decline that has been pushing into long-term support to see if it can crack. Those February lows would have been the obvious target for pros from the recent swing high and now they are into the resting bull stop goodie bag where immense pressure is being brought against large scale holders to cough up positions—which is exactly what a professional bear is looking for as a place to begin covering. This game is often about bringing pressure on those on the other side of the trade for the large players who have the ability to move the markets—and this move from 1212.50 to 1031.75 has been masterful, leaving most retail traders confounded and either out of the move entirely or buying dips in a decline.
Now we are at an inflection point. With the February lows broken, it is now obvious to everyone (after nearly 200 ES points off the top!) that something bearish is afoot. That ‘blinding glimpse of the obvious’ often causes those most susceptible to ‘group-think disease’ to chase a mature move just as the pros often begin to capitalize on their positions.
If one holds the theory that the initial target of the short move off the tops was the place of maximum potential pressure on the other side of the trade, then we are here at the 1031.75 area. I have often spoken about what I call stop sweep reversal play setups, and this is one of them right here. I have placed a new VST bull/bear line at the February low, and that should serve as a good delineator between VST bullish bias above that line or bearish below for the most nimble traders.
I am not a proponent of counter-trend trading generally, but this setup could have some potential (perhaps after the requisite shakeouts). Remember that the long-term bull stops for the big boys are located just under the area we are in presently. If the pros behind the downtrend move are inclined to gin up more volume to provide a buy-to-cover opportunity for themselves—then a push below yesterday’s lows is what is in order and the tactic is a bit like holding someone’s head underwater until they let a ball go. Once the pros have what they want, then they will move along to the next opportunity.
I have no idea what comes next, but this area provides some interesting possibilities and the bull/bear line at 1031.75 should keep VST traders on the right side of whatever move eventually transpires away from this key inflection point.
ES has moved to the last support trendline, which happens to be IT trendline support—so we could see either a complete breakdown under that line, or we could see a countertrend rally eventually erupt if this ultimately turns out to be a major cover zone.
The most comfortable position to be in here is short from the areas shown by arrows on the intraday chart above. Each of those positions represents a sell signal from Stops and Targets for the three timeframes—and each is currently sitting in huge profits with protective trailing stops to lock in gains. If the trap door opens and the market plunges here, those positions are set to capitalize on the break and are ‘stress-free’—which is quite different than what most day traders and bulls who missed the turn are feeling right here.
That last paragraph holds the secret that many of you seek…the trend is your friend.
There have been quite a few new subscribers to the Big Picture blog recently, and I am starting to get emails again from people looking for specific trading advice, and so I want to address that here…
I am not a registered investment adviser (and don’t have any desire to ever be one) and so I cannot (nor do I want to) give individual trading advice. This is a private blog where I find it therapeutic to jot down my musings in a diary form and it is helpful for me to do so with a large audience looking on, as it keeps me centered and focused in my analysis knowing that a very broad spectrum of readers are scrutinizing my writings. I am not compensated for writing this blog and have no desire to ever incur the stress or the liability that comes from managing other people’s money.
We unfortunately live in an increasingly ‘entitlement-mentality’ society, and there are a great deal of people out there who feel entitled to have someone else do the work for them. So long as they get their ‘free fish’ they are placated—but the minute the ‘free fish’ is taken away, the angry mobs roam the streets and smash the shop windows and riot. I am quite ‘old school’ in my sensibilities and I am happy to try to help people learn to fish for themselves, but I do not intend for anything that I write to be used as anybody’s sole personal investment guidance (give a man a fish and he can eat for a day–teach a man to fish and he can live for a lifetime). No two traders have the same circumstances and so no blanket advice or strategy can ever be suitable for all. I highly recommend seeking a qualified investment adviser to assist in strategy and risk profile assessment.
This blog contains an increasingly large body of work that stands or fails entirely on its own merit. If one wishes to fully understand my writings, then please take the time to start at the first post and then work through to the present day to formulate one’s own opinion and to absorb some of the unique jargon that I use.
I don’t particularly like to write this sort of ‘disclaimer’ thing, but it is necessary from time to time to bring newcomers up to speed on what this blog is…and is not.
One last note…there are far too many readers of this blog for me to ever have time to respond to every request, but I do read everything that is sent to me—and always greatly appreciate the feedback. Thanks!