(click image to enlarge chart)
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.