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In my July 12th post, I pointed out what appeared to be a major ‘accumulation zone’ between 1302.50 and 1327.75 and mentioned that what we were looking for at the time was the formation of a structural low at 1319.75 and that the next likely upside target was 1375.  Stops and Targets eventually generated a countertrend sell signal at 1375 (actual high was 1376) and the initial downside target was 1327.75.

Once that countertrend sell signal came, I mentioned that what we next would be looking for is the formation of a higher low and that it most likely would come on a poke below 1327.75, but remain above 1319.75 if the bullish structure were to remain intact.

We may have that low in place at 1321.25–as it fits all the expectations of the analysis, but as always we’ll have to see how this initial push from that dip into the ‘accumulation zone’ goes on a pullback.

I just want to emphasize again how accurate the new Stops and Targets algorithm has been. It pointed out the countertrend resistance target at 1375 (actual high was 1376) and at the time showed the initial countertrend downside target as 1327.75.  It also pointed out the range between 1319.75 and 1375, and so from that we are able to figure the likely reversal target zone (1319.75 to 1327.75), and if the present low were to stand at 1321.25 then that is pretty good shooting.

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I have been pressing the point that ES has been locked in a trading range between 1319.75 and 1375 and that until or unless that range is broken that what we have been seeing is a meandering pattern of stop running between those numbers.  At 1376 we got the pullback from the top of the range without triggering the bear stops (that is an important clue)–and overnight ES has stopped short of crossing the bottom of the range threshold, so it appears to have been a sound analysis thus far.  The expected volatility has come, and now we watch to see if the botom of the range will hold on a pullback.

If the pros have been accumulating under 1327.75, and if the bear stops were left above 1375 intentionally, then it points to a potential run up and through that level where guaranteed buyers will be gathered.  That’s probably not a popular  analysis scenario out there in trader land–but so long as ES remains in a macro bullish configuration, that is the higher odds play–even though everything ‘feels’ quite bearish here to most.  The fact that the pros didn’t take the stops above 1375 makes one wonder if they are being saved for later, but we’ll have to wait and see.

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The VST chart above shows where the stops were run on the ST trend line breaks (in a non-trending market) within the trading range.

Let’s watch 1321.25 as the new VST bull/bear line to see if it can hold on an eventual pullback.  VST price action is bullish above/bearish below.

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Perspective…

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The chart above shows monthly bars on ES, and as I have pointed out before–the very long-term trending pattern for ES is bearish with a series of lower highs and lower lows, but the ‘Obama Rally’ from 596.50 may still have unfinished business at the red trend line resistance.  That has been my long time target, but we’ll see if the Chicago boys can get it there.

Nothing bearish happens from a monthly bar perspective > 1319.75… and hence the importance of that range bottom holding.

…my .02

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ES remains rangebound above 1319.75

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The highlighted analysis above spells out the current setup.

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It comes as no big surprise that both of the VST trident channels were taken out in the meandering volatility within the range.  Next stop-running target lower is the rising VST/ST trend line support, currently in the 1330 area.  These have been great conditions for range traders, and S&T certainly nailed that last partials/resistance target at 1375, but the macro structure only changes if/when the range is broken.

…my .02

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The setup remains the same inside the range…

As I was saying in my last post, a breakout of the old bearish trident channel (at 1359) led to a a quick move and a run for the top of the range at 1375.  We got a touch there after triggering ST trend line resistance stops, and now are seeing a pullback on profit-taking from hitting that S&T target at 1374/1375

The pros left the bear stops in place above 1375, but they are still there and a push above that line would trigger buying as bears cover and momentum buyers enter the breakout into a new range.

The real controlling structure here is the range between 1319.75 and 1375.  Support inside that structure is at; 1359 area (where the bullish trident was broken), the rising bullish trident channel bottom (light green trend line on 60-min chart above) and the primary trend support at 1327.75, which lines up with ST/VST support trend lines.  Above, we have a gap at 1372.25, the resting bear stops above 1375, confirmed resistance at 1379.75, and then a resistance void up to 1405 area.

Stops and Targets algorithm nailed the target at 1374, then switched to resistance at 1375 in an uptrend.  If 1375 is broken to the upside, any remaining countertrend bears probably want to get very defensive.  Otherwise, the ST/VST range remains intact with the targets mentioned above coming into play.  Macro bullish uptrend remains intact on any pullback > 1319.75

Have a great weekend all…

…my .02

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So far, the contracting range and targets I have been pointing out have been dead on…(note the touch, again to the penny, of the dashed pink descending channel line yesterday)

Now we are approaching the apex of the triangle formed by the confluence of the bearish and bullish trend channels within the contracting range.  The pros are consolidating here ahead of a likely fast move–and they have been doing their best to cover their tracks and not tip their hand.  Bernanke speaks again today at 10am and we get the Beige Book at 2pm.  Friday is July OpEx.

The very best traders see those converging trident channels, however, and realize that a cross outside will be the first possible directional move.  Once a trident channel is broken, it is invalidated, so if one is broken and the other isn’t, then we would have a stromg possibility of knowing the trajectory and eventual magnitude of the next move.  Daytraders are watching the small range between 1339.25 and 1360.50 for the same reason.

I pointed out that 1319.75 was the bull/bear line and that remains the case.  So long as ES trades above, that level is a candidate for a ST structural low in a continuing bullish uptrend–defined in the classical sense as a series of higher lows and higher highs.

If the bears are going to reassert, it would most likely come from yesterday’s touch of that bearish channel top at 1360.50–so it is important to watch those two trend channels to see which side wins the initial tug-o-war in the converging triangle.  Counter-trend bears probably don’t want to remain short if that bearish channel is broken to the upside… and of course, we could still see volatility within the range that takes out the channel setup on both sides.  The real ultimate prizes here are the resting stops at 1375 and/or 1319.75.

…my .02

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VST range is now 1319.75 to 1375

Ben Bernanke speaks before the Senate Banking Committee today and tomorrow at 10am both days, then we get the Beige Book tomorrow afternoon at 2 pm.

Setup here is compression between 1319.75 and 1375 ahead of those events–and the innermost targets are; the unfilled gap at 1358.25, the dashed pink and light green channel edges I pointed out yesterday, then the VST support trend line and ST resistance trend line, and finally the range edges at 1375 and 1319.75.  At each of those points are resting stops–so volatility could pick up here depending on where the most low hanging fruit is positioned.  No significant sellers will likely appear > 1319.75, and there are likely (forced) buyers at the resting bears stops located at each of the resistance targets listed above–especially > 1375

Before the market can trend away from this consolidation–the first range has to be broken.

…my .02

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