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Yesterday went just as expected…
We got the push through the top rail of the VLT trident to coincide with the FOMC meeting–and then we got the nearly unanimous pullback off the highs on cash and futures indexes (NQ was the exception). We also have a correlating bottom spotter on the US Dollar Index from October 25th
The Russell 3000 showed 431 new spotter signals internally for a total of 533 active spotters (unconfirmed) to go with 702 confirmed.
Long-time readers know the drill with spotters by now–the high of the top-spotter signal is the absolute hard deck for any counter-trend speculation, and we are watching to see if we can get a daily bar close under the low of the spotter bar for initial confirmation. Spotters are always counter-trend when they are detected and under no circumstances should anyone let a counter-trend speculation be drug back to the other side of a spotter signal (which is a powerful trend continuation buy signal). One tick above that top-spotter is all it takes and the setup is invalidated.
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We are getting the first bounce right where it is expected–from a touch of the top of the last VST range. There is a breakaway gap at 1759, which is likely to be the first upside target.
Intraday lines to watch for ES are yesterday’s bar range of 1773.25 and 1751.75. A tick above and the top-spotter is invalidated. With a daily bar close below, we would get the initial confirmation. Pros don’t usually make tops easy–especially if there are sufficient numbers of bears, whose tight buy-to-cover stops are just too tempting to pass up. The pros have the advantage of seeing real-time short interest numbers and like I said yesterday–the only way this setup can work is if the majority of bears have given up.
If bears do get a foothold here, the first block of sellers are under 1734.50, with first ST support coming just below near the old range top at 1726.75.
I have also drawn in the descending trailing stop trendline that professional bears will use to gauge the risk of a counter-trend trade. If that line is breached, a run above the spotter top becomes much more likely.
Let’s see how this goes in the coming days. The setup is here, but we’ll need to see how that spotter high holds up. Remember–one tick above the spotter high is all it takes and this particular setup is finished.
…my .02
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