Watering Hole Ambush

Recently, I have been mentioning the VST (very short-term) trading range between 1296 and 1267…

The pros have managed to sweep both ends of the close-in stops (bears above 1296 and bulls below 1267) and now we are seeing a bounce back to within the old trading range.  That is what I meant by a ‘target rich environment’ that was set up by the 1/18 and 1/21 structural high and low at 1296.25 and 1267.50 respectively.  We hadn’t seen a structural pivot form since mid-November, and so that was the big clue when those two pivots finally formed at a stall of the momentum and a test of the resistance band I have been targeting for quite some time in my posts.

The initial goal was to flush the bears at the highs, which they did by riding a series of back-kiss sells at the old purple trend channel bottom rail.  The net effect there was to wear out the bears by constantly running tight stops set at previous highs—then when the time was right, they yanked the bids and pushed it down quickly to target the trailing bull stops under that structural pivot low at 1267.50.

That was clearly the pre-planned and intended move and what I would refer to as a ‘watering hole ambush’ …and most very short-term traders trying to catch knives probably missed both ends (as usual), and by design.

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I made two screen captures of Stops and Target’s S&P 500 Futures tab to show how it nailed both ends of that move.  The first shows the selling that came at a touch of the confirmed resistance target of 1299.25.  The actual high of the day was 1299.50!  That target has been hanging out there for weeks, and when you see a solid red target line on those charts (as opposed to simple resistance which is represented by a dashed red line)—that is something, of which, to pay careful attention.

The second screen capture shows the touch of the confirmed support line at 1263.75, which is also a solid line (as opposed to simple support which would be shown as a dashed green line).  Again, when you see that on a S&T chart—expect something to happen there.

S&T users had an opportunity to sell .25 from the high of the move and to cover 1.5 points from the low of the move, for an amazing 35.5 points of a 37.25 point move!

The techniques I use to derive VST targets are a little different from those used by S&T, but I always defer to that amazing system for obvious reasons and this would be a good example.

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The recent stop sweep move is going to undoubtedly trigger significant bearishness out there.  It may turn out to be warranted—but only IF the bears can take out and hold the territory below 1267 after a snapback rally.  We’ll have to see how high and far the bounce goes now that the pros have gotten what they were looking for on the post FOMC setup (the stops on both side of the range) and have tagged the key confirmed support level at 1263.75.

There is an (as yet unconfirmed) spotter signal in place from the high at 1299.50, and so I have drawn in a tentative bearish channel in magenta that should limit any upside to all subsequent snapback rallies if a trend change is forthcoming.  The bears would need to close the daily bar under 1270.50 to confirm the spotter (and take out and hold the area under 1267.50).

The first VST resistance is at 1278.50.  The next resistance above, should 1278.50 fail to cap the snapback from short-covering above 1267 is the short-term trendline break at 1283.75 and the bottom of the blue FOMC trident channel break at 1286.

ES 1267.50 can serve as an intraday bull/bear line for ES.  Price action is VST bullish above and bearish below.

Stops and Targets’ short-term primary trend line is now in play at 1274.50.  That is often an area of volatility after an extended trend–but the intraday bull/bear line at 1267 should provide some wiggle room around that line.

…It’s all about 1267 here, in my opinion…that’s the real line in play and the center of the battle for control of the trend after the double stop sweep.

…my .02

Trendlines

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The blue VST (very short term) trident channel has been broken.

Watch the dark green ST (short trm) trendline support at 1283.75 for a break or a bounce.  The nearest ST bull stops are located just under that line.

All Stops and Targets trends remain up > 1275

…my .02

ES Update

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ES continues to bump into the lower edge of the resistance band at 1296.75…

The pros will need to find a way to jump that resistance band if the plan is to continue higher.  If an upside breakout does occur, the next VST (very short term) resistance target above is at the 1335 area.

ST (short-term) trendline support has now moved to the dark green trendline on the chart above.  I have drawn in ‘bull stops here’ text that shows where the nearest ST bull stops are now likely congregating.

Bulls are fine here so long as the blue trident channel remains intact, but if the lower rail of that channel breaks, bears might be on to something larger to the downside–at what would be the first VST countertrend sell setup.

Note that ES continues to be sold at each back-kiss touch of the bottom rail of the old (now broken) purple trend channel (shown as a dotted purple line on the chart above), which runs approximately parallel to the center tine of the new blue trident channel.  Those old channels can sometimes be used by the pros to incrementally push back countertrend bears placing very tight stops near a pressure point.

This resistance band could be the ‘watering hole ambush’ setup I alluded to recently that coincides with the FOMC release.  This is a point of maximum confusion for very short-term traders and a target-rich environment for pros hunting stops placed by nervous day traders.

S&T is now sitting on a ‘stress-free’ > 100 point core position gain here from the last reversal buy signal at 1185, and is presently awaiting the outcome of the resistance test in this area.

All Stops and Targets trends remains up > 1273

…my .02

FOMC Announcement

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Today at 2:15 PM EST is the FOMC policy announcement.

http://www.nasdaq.com/asp/EconodayFrame.asp

ES continues to trade within the 1267.50 to 1296.75 range elucidated in previous posts.

The blue trident channel has been working for the very short term–with a recent bounce exactly on the bottom rail highlighted in yellow on the chart above.

The band of resistance between 1296 and 1303.50 likely represents the best near-term hope for bears for the start of a pullback.  If, however, that resistance band is broken and held to the upside, the next significant resistance higher is near the 1335-1340 area.

All Stops and Targets trends remain up > 1270.75

…my .02

Trading Range


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ES is locked in a VST (very short term) trading range here between 1267.50 and 1296.75 (shown by a shaded yellow rectangle on the chart above).  Bears would need to break out beneath the lower number–or bulls above the higher number, to ultimately control the trend direction.

I have drawn in a new blue trident channel, which may be what the machines are using ahead of the FOMC announcement.  Oftentimes, the pros like to squeeze one side or the other to a point of maximum pressure ahead of an anticipated event/announcement…and 1296.75 would be a logical upside target, and is where the center tine presently points.  If ES dips below the bottom rail of that trident channel, that squeeze thesis would be challenged, and the idea might be instead to put pressure on the bottom of the range to set up a bearish breakout.

I have also drawn in VST trendline support and resistance (shown as gray trendlines) that is forming a triangle within the trading range.  Countertrend bears are likely using that descending gray trendline as a trailing stop anticipating a break below support.  If that gray trendline resistance is taken out and held to the upside, the most aggressive bears would likely be forced to cover.

On the other hand, if the bears are able to ultimately punch through the bottom support structures located between 1267 and 1274 area—the trap door below would open, allowing a short-term pullback to develop.

All Stops and Targets trends remain up > 1267.25