(click image to enlarge chart)
ES has come within .25 of the top edge of the 1338 – 1241 range and has broken the ST trend line resistance at 1336.
S&T short-term resistance is at 1337.50, so those who initiated trades since the IT buy signal get to take partial profits again.
Just above the cash premarket high is an unfilled gap at 1338 and on the other side of that line likely rests a very large number of bear stops–which, if triggered, could initiate a capitulation sequence. In other words…there are guaranteed buyers above 1338–and buyers are what the pros need to start monetizing their gains.
The next FOMC meeting is now four trading days away. Let’s see if they take the stops early to trigger a breakout–or if they pull back to fish for more bears to add to the pile of guaranteed buyers…
Above 1338 is a range breakout, and if that happens–that line will become a new bull/bear line for those looking to game a possible capitulation and reversal. Above that line is also where new index top spotter signals could become possible–and so that will be interesting to watch for.
The market will only reverse lower when the majority of bears are too afraid to short. That takes away the guaranteed buyers above which dries up liquidity from outside sources. Retail bears have been way too eager to get short and it has been obvious to me that the situation wasn’t right yet for the market to experience a significant decline. Those guys need to be flushed out and/or converted to bulls before we see the possibility of the start of a real bear move.
So far, we have seen a textbook pullback from IT trendline resistance at 1335 to IT support near 1295, and both were detected by S&T and pointed out here.
Now we are back to the range top and ST trendline resistance. To bring in the momentum traders, we need to see the ST resistance trendline broken to the upside (and then possibly retested on a back-kiss).
The markets make complete sense when one tunes out from the ‘news and noise’ and steers a wide path away from the message board warriors and pundits who almost never get it right. That S&P ‘news’ release two days ago was a real gem–and a perfect example of how the masses are manipulated.
ES 1338 is in play right here–and we’ll have to watch and see if it is another range top test, or turns into a breakout. This could be an easy counter-trend play with minimal risk for VST range traders–but you sure don’t want to be short if this eventually breaks out above 1338