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In 12 of the last 13 trading days, ES has touched a narrow price band between 1174 and 1179.50 intraday, marking that as the consolidation zone awaiting the next breakout…possibly associated with the coming midterm election results and Fed pronouncement on February 3rd.

I have drawn in a yellow rectangle on the chart above to show the remarkable compactness of the recent trading action.

Since there have been no index top spotters, my personal expectation is for new highs from this range—but we’ll have to see how it goes…

Countertrend bears are likely using the light gray descending trendline as a stop guide and a breakout through there may target bear stops above 1193.

A break below the ascending dark green trendline could target the bull stops under 1150.

All Stops and Targets primary trends remain up > 1165

…my .02

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As I mentioned yesterday, there are two ways to fuel an extended rally and both require breakouts of technical barriers to generate buyers…

So long as sufficient numbers of countertrend bears are willing to get short against the trend and above all technical support, it is quite cheap and easy in low-volatility conditions for the pros to simply push the futures and force those guys to buy to cover (bears are always guaranteed buyers, as that debt has to ultimately be repaid).  The next VST (very short term) buy-to-cover spot would be just above the local high at 1193, and would clean up all remaining bears who entered in the past three trading days (and who failed to cover the countertrend scalp at the trendline touch—or who allowed a winning countertrend trade to go negative without exiting).

The VST trendline pullback buy at 1170.25 establishes a hard deck for the present squeeze leg and would represent a failure of that squeeze if it were to be crossed before new highs.

The last Stops and Targets short-term trending buy signal generated at 1068 on September 1, now has almost 100 points locked in at the trailing profit stop, which continues to advance higher awaiting an eventual stop-out at trend exhaustion.  Nothing in trading beats the feeling of riding a stress-free trade with profit locked in and that’s what Stops and Targets is all about.

All trends remain up > 1163.75

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Bull and bear stops should now be concentrated at 1155.50 and 1207.75 respectively…

As we approach November 3, one (or both) of those areas could act as a magnet for a stop sweep move.  As I type, ES is hovering near the approximate middle of that resting stop range.

ES has come a long way since the last spotter low at 998 and those who have been playing this trending move correctly have very nice gains locked in at this point.  Odds are that many bulls will start to tighten their trailing stops as we get closer to the mid-term election results/Fed proclamation on November 3–and if a sell-off were to begin, the dam could break with a punch below 1155.50 and especially with a move under 1142.

However, those bear stops above the April high at 1207.75 might just be too tempting of a target to leave behind for the pros—and since this is a fully-bullish market at this point, the odds favor a continued move up to knock those remaining bears out.

Ideally, I would like to see a top spotter setup before the next swing down begins, and that requires new highs to create the proper setup conditions.  However, those bull stops down at 1155 are about the same distance away from the present price and so that could be the path of least resistance if insufficient buyers are available to overcome that April resistance and sidelined potential buyers are awaiting a pullback to reinforce the charge.

There are two ways to generate a surge of buyers at higher prices (momentum traders and bears covering)—and both require an upside breakout of a technical barrier.  We got that at the long-term trendline breakout at 1159 and the recent back-kiss at the purple arrow on the chart above signaled the pullback buy for that breakout.  Now we have to see if that buy point (ES 1155.50) can be sustained, and that is why that particular price becomes very important going forward.

The pros are very clearly long this market from much lower prices (998 area) and they are likely the ones who have been providing shares for sale at the ask.  At some point, they will have distributed their accumulated inventory and we will get a turn as they look to eventually cover shorts and reload long at lower prices.  The game is always the same and never changes.

This is an extended rally, and as I have mentioned several times–there has not been a single pullback to short-term support since the September breakout–implying tremendous underlying strength on the bid.

The first sign of potential trouble for bulls would be a break of the green trendlines on the hourly bar chart above (1164.50 area).  The first Stops and Targets countertrend sell setup would come under 1163.75, but the real number to watch on the downside would be 1155.50

The trend is your friend…

All S&T primary trends remain up > 1162.25

…my .02

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ES has not pulled back to short-term (ST) primary trend support since the last Stops and Targets breakout buy signal on 9/1/10 at 1068, and is currently up over 10% from that ST entry.

This is a Bull 10 market and typical pullbacks occur to targets near the ST primary trend support.  That ST primary trend line is presently at 1160.25 and is close to the ST partials trailing profit stop of 1160.75.  A touch of that line would net about 100 points locked in from the recent rally leg from the last S&T buy signal.

The next target higher for all major timeframes is at 1203.25.

The next VST target lower, should a pullback develop, is at 1164.50 area.

The capitulation point for most remaining bears would likely be a push above the April high of 1207.75.  The top of the Fib retracement channel is at 1214.

The closest major bull stops are way down at 1127 area.

ES has seen nine consecutive weeks of trending higher since that last ST buy signal at 1068 (last VST buy was at 1035).  The current weekly bar would need to close > 1180.75 to continue that impressive weekly string.

A pullback here is not surprising considering the unrelenting advance since the last buy signals.  If buyers step in after a shallow pullback and ES resumes the march towards the targets mentioned above, it will be very interesting to watch for spotter signals once those upside objectives have been achieved.

Until a sustained breach of support and a pattern of lower highs /lower lows develops, there is nothing to do here for trend followers but continue to push up trailing profit stops on existing trades to see where this present rally leg eventually goes.

All trends remain up > 1160.25

…my .02

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The back-kiss of the LT trendline (purple arrow on chart above) that I mentioned in my last post was indeed a hidden buy signal.  🙂

As I type, ES is now up about 140 points since the last VST buy signal…

The actual turn for this leg was sniffed out by bottom spotter signals on August 25th and I posted an update at the end of that day noting the bottom spotters and an unusual number of countertrend buy signals.  That post can be reviewed by clicking here.

Since the subsequent pullback buy signal at 1035, the uptrend has relentlessly flipped each successive trend starting from the VST and then progressing through short-term, intermediate, and long-term until a fully-bullish Bull 10 configuration was indicated, and a trading range breakout was achieved > 1143.25.

This trending move has been a great illustration of what Stops and Targets does best—which is to ignore the news and noise and make completely logical strategy suggestions.

Nearly all of us humans struggle to reconcile our feelings and instincts with the reality of the markets.  Stops and Targets is the best trading tool I have ever seen–as it really keeps a guy honest about assessment of the opportunities at hand.

It didn’t feel at all bullish when those bottom spotter signals triggered on August 25th, and it likely won’t feel at all bearish when the next top spotters signal.

I find it to be helpful to go back through this blog at key turn dates to reread what happened just before and just after key swing turn dates.  Generally speaking, if I am doing things right, I will typically catch a trend change within a day or two of the actual swing high or swing low–and Stops and Targets is the primary weapon that I use to check against the other very short term techniques I employ, which vary depending upon the type of market at the time.

I have placed screenshots of the present Stops and Targets analysis tabs here to show what the market looks like during an extended trend and these tabs may be interesting for review at some later date, depending upon what happens going forward.

The best strategy here is to continue pushing trailing profit stops higher for existing ideal ES trades.   The closest short-term partial stop location is at 1160.75 (see short term tab above) and the primary trend line is closing in at 1153.50.

I remain on the watch for signs of weakness in momentum that will eventually develop.  Ideally, Stops and Targets will again sniff out the next swing turn with a corresponding set of spotter signals and countertrend sells like those that we saw on August 25th in the link above.   If a top spotter signal develops at or before the next upside target is achieved, it will be visible intraday on the indexes and on individual equities on the multitrend tab.  I would urge users to be very careful with those intraday spotter signals, though.  Spotters only trigger at the close when the daily bar enters history and then confirm on a subsequent close.  It is nice to see the intraday spotter setups (a new feature in Stops and Targets version 2.0), though.  A clever countertrend trader can often enter very close to a turn using the daily high (in the case of a top spotter) as a hard stop should an intraday spotter develop and there is also an intraday invalidation number for very aggressive traders.

The present ideal trades at the time of the screen shots for Stops and Targets are…

ST = +111.75 points
IT = +98.50 points
LT = +105.25 points

It is hard to argue with those sorts of returns and for the discipline and trade management it represents.

Next target higher is 1203.25 on all three time frames.  All trends remain up > 1153.50

…my .02