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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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