ES Update

.

.

(click images to enlarge charts)

.

Stops and Targets is now indicating a short-term trading range for ES between 1342.50 and 1271.50.  The VST (very short term) range is 1292.50 to 1343.

After the recent unrelenting run-up, ES is working on establishing a potential structural pivot from the initial pullback starting at 1343.  The best candidate for that at present is the recent pullback low at 1292.50.  It may take several more days inside this range (or above) for that structural pivot to form.  It must hold on any pullback (which would otherwise reset the cycle time clock if that low at 1292.50 is exceeded).

This is typical action after an initial pullback and is necessary to build the trending structure for the next move.  If, for example, the market is nearing a top—it is important to establish the three points necessary to build a bearish trident.  The initial handle point is in place at 1343, and the potential structural low is in place at 1292.50.  What would need to be determined next is the second pivot high to determine the slope of the decline.

The reason structural pivots are called that is because they enable two scenarios to build—the first of which I described in the previous paragraph.  The second bullish scenario is shown by the tentative trident channel I have drawn in (dashed teal lines on the chart above).  Thus far, that scenario is the most plausible because the market is moving higher from that structural low and not enough time has elapsed to allow the formation of the second pivot.  Hence, the resulting trading range with an upward bias.

The early action has pushed through old VST resistance at 1322.25, and that line will probably serve as an intraday bull/bear line for day traders.  Late to the party bears who missed the entry at the shaded countertrend sell zone and then missed the cover target at the bottom of the green trident channel and the subsequent protective stop trigger at the break of the dotted red trendline are presently being squeezed here above that line.

.
An anecdotal observation…

The last high at 1343 triggered no top spotter signals on the indexes, and though that is not a requisite for a swing pullback—it is always nice to see those in place before getting bearish.  I can’t help but notice that the usual permabear suspects I track are frothing at the mouth bearish (and some have been for months).  When a significant top comes, typically the permabears are in deep hibernation and that’s not what we have been seeing of late as the top calling has been extraordinary and the usual posts about ‘poor fundamentals’ and ‘crash coming’, etc., are everywhere to be seen.  Those guys probably need to get to the last stage of ‘acceptance’ (in the five stages of capitulation) before the turn comes, and I am not seeing that yet.  When I posted the ‘giraffe in quicksand’ video link recently, I was thinking ‘denial’ was the likely state and following that comes ‘anger’.

If this current push continues higher to take out the recent high—we could start to see some angry bears emerge…and then the time will come again to start watching for top spotters to form.  Of course, this type of general sentiment observation is just anecdotal and not something that one builds a trading strategy upon, but it can be interesting nonetheless.

Stops and Targets is handling the emotion-less strategy calculations, and for now, all trends remain up > 1312.50.

…my .02

ES Update


.

(click image to enlarge chart)

.

ES has had two great short-term moves coinciding with February OpEx.  The bullish move from 1275 to 1341.50 and then the bearish pullback from 1341.50 to the trident channel bottom rail near 1293.50 that I showed yesterday.

Yesterday, ES bounced right at the light green trident channel bottom rail near 1293.50 and then that entry was retested with a small flush to 1292.50 to catch those who prematurely moved their entry stops to the previous low.

Since that trident channel bottom rail entry has been back-tested, the VST/ST momentum has shifted to the bulls here and price has crossed back into a fully bullish Bull 10 market here above the primary trend line.

I have drawn in the Stops and Targets’ short-term ideal buy and sell zones shown as green and red shaded areas around the primary trend line.  The next ST targets are 1373 to the upside and 1273 on the downside.  That’s a 100-point range.  Split that in half and the median is 1323, which is near the next VST resistance at 1322.25.

The middle of that ST range is the volatility zone and we might see some wiggling in here as VST traders take shots around the primary trend line with tight stops–in an area where wider stops are required (see shaded ideal entry zones).  Tight stops inside the primary trend volatility zone are easy to run, and the pros may take advantage of the heightened interest here from those who may have missed the recent party and are trying to find a foothold.

The VST entry at 1293.50 at that channel bottom is in good shape, and pros will likely protect that position by trailing stops under the rising channel bottom to ensure a positive gain slope.  So long as ES remains above that line, the bears are on the outside looking in.  If, however, the bears are able to eventually take out that channel bottom rail—then they would reassert control of the ST trend.

The next resistance target is at 1322.25 and then we’ll see if the bears can mount a counter-attack near that line, which would be the logical profit taking line for the entry from 1293.50.

…my .02

.

.

addendum 2/25/2011 at 10:39 am

.


I just got a private message from a reader pointing out the ‘Trendicator’ on Stops and Targets’ ES analysis page (highlighted by a blue rectangle in the image above).  It has been saying ‘trend is up > 1294.75’, and of course, the low yesterday just touched that and then reversed.  Sometimes I work way too hard, when the easy answer is right there in the tool.  LOL  🙂

.

ES 1293.50

.

.

.

(click images to enlarge charts)

.

ES has hit the bottom of the light green trend channel shown on the daily and hourly bar charts above.

ES 1291 is it for the nearby downside support targets and there is a support void between 1291 and the 1272 area, which corresponds with intermediate term primary trend support from Stops and Targets.  Voids can lead to exhaustion moves as stops from the last holdouts from the previous move are harvested by the pros using pressure tactics.

The pros have now taken all the easy stops from the short-term resistance target pullback from 1241.50–and it was done in an orderly fashion, with profit taking at the support targets I have been pointing out the past few days (shown as yellow highlights on the VST chart).

If we are going to see a snap-back rally, this area makes some sense as a candidate–since the nearby bull stop raiding objectives have been met.  The markets are moved for a reason, and the pros have likely found ample sellers at each level to partial out their short position.  What is unknown at this point is if they will go for a downside breakout under 1291, or just rally from the trend channel bottom rail.

The break of the short-term support trendline at 1301 was something most anyone can see—but very few retail traders are likely aware of the light green trend channel setup for a bounce lurking just below.

I have drawn in dotted red trendline resistance to show where protective trailing stops are likely located for VST bears.  A breakout through those lines would probably trigger buying (bears to cover and bulls to ‘buy the dip’).

The short-term primary trend remains down < 1312.75 and I have drawn in the short-term ideal entry zone from S&T as a reference (for downside target at 1272.25).  If price crosses back above that primary trend line—everything changes from a bias perspective and the macro trend would revert back to fully-bullish.

Same deal here at 1293.50 area as the previous downside targets, and that is to be wary of an initial rally that fails and then takes out the previous low.  Watch the NYSE advance/decline line for clues about intraday strength/weakness.

If they do take out and hold 1291 to the downside, we could see a fast move lower as there isn’t much to stop a decline under that line.  Alternatively, they might even run the last stops under that line and then reverse.  If so, ES 1291 would become the new intraday bull/bear line for day traders.

Bears are probably fine under 1311.25, but a push up and through that line and bulls will have resumed control.  You always have to be nimble on the short side, and the tactics are different when probing a pullback/potential reversal in the context of an established uptrend in higher timeframes–versus trading in an established bear market.

I have also included a daily bar trendline chart showing the macro trending setup.  For bears, the first technical step would be to get a close below the ST support trendline—and a full-blown ‘bear market’ doesn’t officially start until the bottom of all three support trendlines are broken.  The channel chart and the trendline chart should help to establish perspective on where we are, at present, and to help to formulate ‘what if’ scenarios.

It’s been a great pullback setup from 1241.50 to the bottom of the light green trend channel at 1293.50, presently netting almost 50 points on the short side—but it is best to be wary here at the edge of the support void and on the lookout for what can sometimes be violent rallies from an oversold condition as bears covering and bulls buying make for a double dose of pressure on the bid.

The trend is your friend until it ain’t…and one can’t ever let the pros drag a position to the wrong side of the primary trend should a violent reversal move erupt.  The advice holds just as true for bulls being squeezed in bear markets as it does for bears being squeezed in bull markets.

…my .02

ES 1308

.

(click image to enlarge chart)

.

The Stops and Targets’ short-term countertrend sell signal generated Friday at 1341.50 has achieved it’s target of 1313.50 for +28 points on the short side.  That was a great setup.

Stops and Targets’ primary trend lines almost always indicate zones of volatility–and I have drawn in a light blue shaded rectangle to indicate my best guess at where very short-term traders might have their stops located on either side of that line…

The top of that volatility zone at ES 1322.25 has been an important line and yesterday the pros wiggled +/- about 12 points either side to first panic bears into covering and then to sweep the bulls who chased the entry (with a very poor advance/decline ratio on NYSE–which was a tell as to the underlying weakness of that early ramp).

The pros stopped short yesterday of the next VST downside target at 1308, which is the bottom of the volatility zone I have drawn around the present S&T short-term primary trend line at 1313.50.  Under there should be where VST bull stops are presently located and a sweep and recovery from there could remain above the key short-term primary trendline support (shown as ascending dark green trendline marked ‘ST’ on the charts above).

If that dark green ST trendline breaks and we get a daily bar close below, that would be a bearish technical breakout (though those initial trendline breaks are often retested on snapback rallies).

The market likely needs to build a new structural pivot somewhere in this area.  The watch is on here near short-term primary trend support to see if the market holds typical Bull 10 macro trending characteristics (which is a tendency to pull back to near the short-term primary trend line before resuming a fully bullish trend).

If we get a daily bar close below primary trend support at 1313.50, the odds increase for a deeper pullback to the intermediate primary trend support area, which is presently at about 1270.

Yesterday was a partials payday at 1341.50 for Stops and Targets’ short-term traders from the last trending run from 1275.  For those who like to scale in ahead of a potential trend change (or to countertrend trade as a timeframe hedge), a great short entry was established at that same number–and is sitting nicely in profit here as we test the ST primary trend line (and the VST target just below at 1308).

It remains to be seen whether this pullback is of the short-term variety—or if it will morph into an intermediate term pullback…  If ES breaks below 1308, it will be interesting to see if it stops and recovers before breaking the dark green trendline support.  If it does, then 1308 would become the intraday bull/bear line and odds would favor bulls on a resumption of the macro bullish trend above that line.  On the other hand, if that trendline breaks at 1301, then the countertrend sell at 1341.50 would turn into a hold for a run at the intermediate primary trend area.

Today…the shaded volatility zone may constrain price early on, but if it breaks out to the downside, then I will be watching 1308 and then the dark green short-term support presently at about 1301 for clues.

If price breaks out above 1322.25, then bulls would be back in control with 1335 as the next upside VST resistance test.

The intraday bull/bear line is at 1308…VST price action is bullish above/bearish below.

…my .02

ES Update

.

(click image to enlarge chart)

.

ES has pulled back to just below 1322.25, which is the line where a bunch of early bears from beneath the last trading range breakout on 2/11 remains trapped beneath.  Those trapped bears can often provide a bid under the market as some decide to cover at/near breakeven as the opportunity presents.

The recent bulls who sold out at their range breakout entries > 1322.25, and bears who chased the initial decline, together provided cheap shares for the pros to buy to cover on partial short positions from the 1341.50 target—and that’s how the game works.

The pullback during a holiday break likely left most bears scrambling to chase the decline, which has already achieved the initial VST objective mentioned yesterday at 1322.25.  That line should now work as an intraday bull/bear line for day traders.

If ES rallies before taking out that low at 1320, the countertrend stops above could be an enticing target–with a supporting bid from capitulating bears who likely will have had enough.  If that happens, the structural low at 1320 would take several days to validate and that could become a potentially critical level in future sessions.

If, on the other hand, this initial pullback can break below 1320 and begin to unlock trapped bears, the VST bull stops under 1308 would be the next target lower.

The rising dark green trendline at 1300 area represents short-term trendline support, and bears would need to take that out to kick off large selling volume.

Today should hinge around 1322.25  VST action is bullish above/bearish below.

All Stops and Targets primary trends remain up > 1312

…my .02