ES has just filled the second of two breakaway gaps (1569.75 and 1582) from the bounce after the pullback to 1530.75. That low is now a (marginally lower) ST structural low and defines the bottom of the current trading range between 1530.75 and 1593.
Bear stops are resting just above the trading range, and bull stops just below…
On the chart above we can see that the previous descending counter-trend trailing stop trendline worked very well to set up the current VST trade profile. The initial breakout at 1548.75 was followed by a back kiss of that trendline extension, and then we got a second pullback to an exact touch of the breakout line at 1548.75 and then the launch back toward the gaps (both are now closed).
ES is now inside the counter-trend ideal sell zone between 1593 and 1581.75. That zone would technically come into play only if we got a stop run above 1593, followed by a failure of that support to set up a counter-trend trade signal in Stops and Targets–but we may see some continued resistance as some counter-trend bears add positions here and then use 1593 as the protective buy-to-cover stop. That congregation of stops is what makes the squueze strategy work for the pros so long as pessimism of the prevalent trending move remains high. If enough bears pile on, it guarantees buyers at a higher price as the pros know those bears have to eventually buy to close the open short trades. Of course, the pros get to ‘read the mail’, by always knowing the real-time position of traders, so they will know if/when the calculus is correct to apply a squeeze into the stops–or to eventually let the trade die. The deck is always stacked against the top/bottom pickers for that reason–but that doesn’t seem to dissuade them.
The counter-trend bears are looking for an ‘M’ pattern to form as the momentum possibly could wane from the bounce from the stop sweep under 1533.25 and reversal higher. This second gap fill is one of the places where those type A bears might take a shot. Not my usual style to trade against the trend, but eventually one of these guesses is going to hit for those guys. So, let’s watch this gap fill here and see if the pros set the hook with feigned weakness potentially setting up another push to new highs –and a reset of the game.
The counter-trend bears have slightly increased odds of this setup working by virtue of the formation of a lower structural low–that is often a tell that a top is in (or nearly so), and therefore the reason that some would be looking for the right side of an ‘M’ pattern to form. Trends are defined as a series of higher highs and higher lows (bullish)–or lower highs and lower lows (bearish). Bears now have their lower low–so they just need a lower high and then an eventual break of the lower low to start the trend reversal. Of course, a move above 1593 would reset to a higher high and negate the setup except in the case of a stop sweep/reversal from a marginal new high to set a higher right shoulder on the ‘M”. Inside the range, we are currently watching to see what happens from the stop sweep/reversal from 1530.75, which is the inverse of the trade described in the previous sentence, to form a bullish ‘W’.
The light blue trident channel defines the short-term bullish structure. A break below that bottom rail would signal potential trouble for the bulls and a change of the existing pradigm. As I mentioned above, we have now reached a place where weakness could occur due to conservative profit-taking at the gap fill and the touch of the counter-trend ideal entry zone, but all trends remain up > 1533.25.
Next ST/VST target higher is the range top at 1593, next target lower if we get a pullback from this area is the bottom rail of the rising trident channel, currently at the 1552 area.