ES Update

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Yesterday, ES drifted down to test the bottom of the ST range at 1202.75 (actual low 1198) and we have a bounce going from that level.  As I have mentioned several times recently, the VST trend line resistance is the controlling line for this retrace from the IT target at 1266.  That line has moved slightly from yesterday’s setup and I have also redrawn the support and resistance targets in a shorter timeframe.  The first resistance band is between 1220 and 1223 and that is where ES is as I type.  Next target higher would be yesterday’s high at 1226.50 and then the trend line resistance at about 1231

The market has been compressing sideways for so long that the S&T primary trend lines are now squeezed within a ten point range!  You don’t see this very often, and when it does happen it typically presages a big trending move.  No way to know which way this will eventually break out–so best to just key on the bias on either side of the primary trend lines.  This is a setup for volatility as I still think the IT triangle is controlling the consolidation, though that is about to become a short-term triangle with the new structural high forming at 1266…

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On the daily bar chart above, the compression between the IT resistance trend line and ST support trend line forms the triangle I referenced above.  The pro’s game seems to have been to hold the market in a sideways consolidation long enough for the longer cycles to catch up.  The IT support is in place, but we are still waiting for a long-term structure to build, which would appear early in 2012 if this consolidation continues.  The rapid decline in July/August may have been an intentional takedown to get the bear market over with before the election season here in the US.  The price action since is consistent with absorbing and repairing the technical damage from the rapid decline, but that is pure speculation on my part.

The current short term pattern is a series of lower highs and lower lows–and that, of course, is bearish.  To break that pattern, ES would need to first establish a new (higher) structural low and then rally to take out the most recent structural high at 1266.  Yesterday’s low at 1198 is the current structural low candidate and so VST action is bullish above but would revert to bearish below if ES continues to drift lower.  If that were to happen, the next obvious bear target would be the rising ST support trend line currently at about 1172.  Bears are fine under the VST trend line resistance, but the most aggressive bears would begin to cover on a push above that line.

You never know where a move is going to go once it kicks off, so like I said above, though it may seem a little frustrating watching ES meander back and forth across the primary trend lines–that is just a reflection of where this market is at present and is a real-time litmus test for bias that will keep us on the right side of whatever trend direction develops going forward.

…my .02

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