ES Update 7/30/10

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After spending five days in the squeeze zone above 1099.25, ES has now retreated below the potential stop sweep/reversal line at 1099.25–and has just broken the dark green support trendline where many bulls likely had their stops set just below.

I have used the analogy of a water polo player having his head held underwater until the ball pops up…well, it takes about a week typically for that to play out and I have numbered the days on the chart above around the shaded rectangle.

The bulls stops under the trendline are what they want here and the immediate question is whether they break the trendline and then rally after the bull stop harvest—or if they will keep pressing to the downside, which could dramatically change things for the macro picture, if they do…

Stops and Targets primary trend lines are clustered in a very tight 15-point range between 1078 and 1093 and so the macro trend could conceivably flip from fully bullish to fully bearish if the downside push after the trendline break continues.

As always, the trick is to come away from the primary trend lines on the right side of the trade—and that requires mental flexibility and nimble trading skills around the lines.

The VST short entry I pointed out at the last gray trendline break (which lined up nicely with S&T short-term resistance at 1111.75) has developed into a pretty good trade here and I have drawn in a new gray resistance trendline to use to guide placement of trailing protective stops for those rolling entries into higher timeframes.  That trade is in profit and stress-free at this point as higher timeframe short-term support at 1084 is being tested.

This rally has been driven by the short-term time frame and if it was merely a short squeeze and the stop sweep reversal theory above 1099.25 is correct, then we could see a break to the downside below the long-term primary support line.

On the other hand, if this pullback reverses near the 1084 area at trend breakout support—then we could see a rally unfold after the stop sweep under the dark green trendline…so that 1084 number is likely key today.

Short-term primary trend support is being tested at 1084 after a pullback from short-term resistance at 1111.75, and the outcome of this test should give a clue as to where the pros are now positioned.

…my .02

ES Update 7/28/10

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Yesterday, I neglected to draw in the Stops and Targets short-term resistance target line at ES 1111.75 on my VST chart.  It is now added as a dotted red line and, as usual, it marks a battle line between bulls and bears at a test of resistance where partial profits are taken (+39 points from trend change) and where high-risk speculative counter-trend short trades can sometimes materialize.

The gray VST support trendline was broken yesterday after several hours of sideways price action centered around that dotted red ST resistance line at 1111.75.  I have now drawn in a descending gray trendline above and it may be a good initial hard stop/reversal guide for any speculative VST (very short term) counter-trend short positions from ST (short-term) resistance.

ES 1111.75 is relatively weak resistance (shown as a dotted red line rather than a solid red line in S&T short-term chart), so any initial speculative VST trade would need to be kept on a very short leash (in my opinion).

Today has the same basic setup today as yesterday…except now the VST bears have a slight edge under the descending gray trendline as the ST resistance at 1111.75 resolves.  If that descending gray trendline is taken out to the upside, however—there again would be no reason (in my opinion) to be short in any time frame.

I have also posted a higher time frame trendline chart to step back and consider the larger picture.  Short-term bulls have been driving this rally since 1002.75 and they will likely hold their positions on a pullback–so long as that dark green ST (short-term) trendline support holds.  That ST trendline support is the trap door that bears would need to kick open to wrest control back from the bulls and so becomes a key element to watch if a significant pullback eventually materializes.

All S&T trends remain up > 1092.25

…my .02

ES Update 7/27/10

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The post July 4th rally, detected on July 6th by a Stops and Targets bottom spotter signal at 1002.75 and confirmed on July 7th at 1038.50, is now at 1116, as I type.

My read of a stop sweep/reversal play under the February lows at 1031.75 lined up nicely with the Stops and Targets numbers and after grinding through breakout resistance and taking out the intermediate bear market structure, all trends are currently up > 1091.75.

Stops and Targets has locked on to 1203 as the next upside target in all three major timeframes, indicating that this rally could be potentially headed for new highs.

The first order of business though (in my opinion), is the structural pivot resistance at 1129.50, which is the next VST target.  I have drawn in a gray support trendline on the chart above that shows a good location for a tight following stop as ES approaches that target.

If ES gets to the next pivot at 1129.50, then I will move the VST bull/bear line to that number as a potential pullback/reversal number for a countertrend setup.  If that area doesn’t turn this back down, then we could indeed be heading for new highs where the pros will be looking to sell at retail on the way up–what they bought at wholesale under the February lows.

For now, there is absolutely no reason to be bearish above the gray trendline support (in my opinion).  If that trendline were to fail before the next VST target is attained (and it just might) then the current stop sweep reversal setup line at 1099.25 could come into play.  Those types of setups often take a week or more to ultimately play out as the pressure is ratcheted up on those who are trapped.  I have explained in a previous post how the pros often use pressure (a squeeze) to force traders on the other side of their trades to make mistakes.  The analogy was like holding someone’s head under water in a water polo match until they release the ball. Bears who missed the turn and those who are guessing at tops against the trend are providing fuel here for the march higher—as are those who are chasing the breakout on momentum trades.

The trend is your friend until it ain’t…and all major trends are up > the S&T IT primary trend line at 1091.75.

The VST trend is also up so long as the gray trendline support remains intact—but a break below could be the start of a pullback to test the recent resistance band breakout.  The next targets lower would be 1096 and then the rising dark green trendline support, if/when that pullback occurs.   First clue that bears may have something going in the VST would be a break of the gray trendline.

ES is currently driving toward 1129 area with VST trailing stop support underneath at the gray trendline.  I will be watching for a break through one of those two levels (either 1129 or the gray support trendline) for the next VST reaction—but the current VST picture is a bullish hold here while pushing up trailing partial profit stops behind those trades.

…my .02

ES Update 7/26/10

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The big question on many traders minds is…was this just a squeeze or is it a sustainable breakout?

The VST (very short term) timeframe is a good place to find the first clue for the answer to that question and ES 1099.25 is the line in play.  Intraday traders will likely use that recent pivot high as a ‘bull/bear’ line (trading bias is short below and long above that line for the VST timeframe) now that the bear stops have been run just above.  .

Every squeeze objective from the last stop sweep/reversal play from 1031.75 has now been attained with the flipping of the S&T trends, breakouts through all trendline resistance, and finally the stop sweep above the recent pivot high (where many bears tend to place their protective stops).

If the steady bid that has been under price since the start of the July 4th rally evaporates, and a pullback begins below 1099.25, then the next likely lower target would be the bull stops under the dark green trendline.

That rising dark green trendline is a good place to use for trailing profit stop placement for long trades initiated since the stop sweep reversal at 1031.75.  Those long trade entries (from green arrows) are all in profit and stress-free here above that trendline.

If this breakout proves sustainable, then the next minor target higher would be at 1129.50 and the next band of heavy resistance above that is at the 1170 – 1180 area.

I am seeing minor momentum divergences on ES that suggest a VST reversal is possible here at 1099.25, but ‘it is what it is until it ain’t…and right now all major trends are up > 1091.25.

The easy line to watch is 1099.25…VST trade bias is bullish above/bearish below, with the next potential targets (in my opinion) being 1129 on the upside or 1070 to the downside.

…my .02

ES 1099.25

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The bulls have broken through the last of the trendline resistance and are sitting just below the major resistance band (1096 to 1103).  That resistance is centered around 1099.25, which is now a short-term structural pivot, and the place where many resting buy stops are now likely located just above.  The resting buy stops are from bears who will capitulate and buy to cover–and from tactical momentum buyers who will buy the first breakout of a new higher low/higher high sequence.

The pros are now in position to light off quite a few buy programs with a push above 1099.25.  It is an obvious setup, though, and so we could see some trickery here if too many traders are trying to front run a breakout.

ES 1099.25 has the potential to become another stop sweep/reversal play–if this push from the last major stop sweep reversal play ay 1031.75 has been designed primarily to squeeze the bears.  If price eventually moves above 1099.25, then that line will become the new bull/bear line for VST (very short term) positioning trades (VST trading bias would be long above/short below).

The real trick is to come away from the S&T primary trend lines on the right side of the macro trend and it will be interesting to see what happens if/when the buy stops are triggered at 1099.25 +…or, if that heavy resistance band turns back the rally before triggering the pivot breakout stops.

If the resistance area holds here—then the primary trend lines and the rising support trendlines underneath become the downside targets if they decide to shake out the bulls with tight stops hoping for an easy trade ahead of the pivot resistance area.

This has been a pressure move to squeeze the bears and the key is to watch carefully to see if the bid evaporates after a major objective is achieved.  The ultimate objective could be the resting stops, or it may have just been breaking the trendline resistance on the first push.

If a pivot breakout (should one occur) is sustained and bought after the first pullback–that would imply that a higher target is desired.  If, on the other hand, the buying wanes above the breakout once the stops are triggered and price falls back below the bull/bear line…we could see a stop sweep reversal.

The initial objective was taking out the trendline resistance, and that has now been achieved.  It remains to be seen whether the pivot high at 1099.25 is eventually taken out—or if will become just another lower high in a macro bearish sequence…which would likely surprise a great many people, if that were to happen.

The intermediate bear market is not going away quietly here, and this two week long fight at intermediate-term resistance is critical in working out which side of the macro trade the pros are on.  ES 1099.25 could serve as a good VST barometer of their intent and their positioning going forward (bearish below/bullish above).

…my .02