ES Update

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We got the new lower weekly 4 bar pivot at 1821.75 on the close of last week’s trading that I have been awaiting.  That pivot is marked as point number 6 on the weekly chart above.  Since 2009 we have now had just six occurrences where price violated a 4-bar weekly pivot low.  On all but one previously, the recovery was immediate after a stop sweep –and those pivot lows (with one exception) were not touched again.

The one outlier was at point number 3 –where we eventually got a double bottom eight weeks after point number 2 was established.  So. let that sink in for a bit…in six years of trading, these pivots have a 75% success rate at marking significant bottoms, with the one outlier dipping a mere 3 points under it’s double bottom twin before rocketing higher.  So, if the paradigm continues, there is a pretty good chance that 1821.75 could stick here as a bottom.  As I type, we are near the top of the 3:1 ideal gain to risk entry zone for a potential trip back up to confirmed resistance at 2025.  I have marked that weekly bar ideal entry zone as a blue rectangle on the chart above between 1821.75 and 1871.

So, if the pros go with the standard metric we could be near a potential bounce zone here for a possible run back up to the 2025 area.  The hard deck for counter-trend bulls now is that key pivot at 1821.75.  If that were to fail, the next major target lower would be the stops under 1781.75 and in a full-blown takedown the next target below there would be the rising trendline support drawn off the 2009 bottom and the bottom at point number 3 on the chart above.  That trendline is presently near the 1650 area.

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In recent posts I have been talking about the underlying structure that would need to be built to stabilize the market after the takedown to 1821.75 –and so far it has been ticking along like clockwork.  We got the short-term lower high at 2011.75 and next up is the likely formation of a higher ST low–dependent, of course, upon the higher timeframe weekly pivot at 1821.75 holding.

As I pointed out in my last post, it is always about the stops in situations like this–and the pros went for the stops under 1889.50, as expected.  If we get a rally that crosses above that resistance, we should see buyers come in above that line and the new ST trendline resistance would be the target of that trade.  That descending trend line is currently near the 1975 area.

So, head’s up in this area for the start of a potential rally but realize that when the market makes as violent of a move as it did between 2094.50 down to 1821.75 the trading oxygen is temporarily sucked out of the market as the pros switch from being buyers of premium to sellers.  If that thesis is correct and I were pulling the levers, I would lay in a higher ST pivot inside that blue rectangle on the weekly chart above and then work the range between that low and the recent ST pivot high of 2011.75

As I type, the current candidate for a new ST pivot low is 1861 and it meets all the parameters that I have been looking for, though we could see a bit lower still somewhere inside that blue rectangle on the weekly chart.  The next targets lower if 1861 is taken out would be 1851, then rising ST trendline support, then an unfilled gap at 1819.25 …and if they were to take out the weekly pivot the next major target would be the stops under 1781.75

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Stops and Targets is looking for 1851 as the next ST/IT target lower, and you may recall that was the original buy to cover target I pointed out on the takedown from 2094.50.  My thesis has been that the pros may be accumulating near that area with 1821.75 as their hard deck as they run out the clock on option premiums.

Head’s up here at 1889.50 resistance area.  That line can work as an intraday bull/bear line as we watch to see if yesterday’s move under the line ends up being a stop sweep/reversal.

…my .02

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ES Update

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Going into FOMC and OpEx the pros did just what I expected by running the bear stops and setting up a potential ST lower pivot high inside the ideal entry zone (shown as a shaded red rectangle on recent daily charts) before pulling back.

The focus on the daily bar chart above is creating five bar pivot highs and lows, which is what often sets up the short term trading range.  Right now, that range is extremely wide due to the orchestrated rug pull from 2094.50 down to 1821.75 (the current ST trading range!).  The FOMC stop-running pop up to 2011.75 created the minimum necessary to eventually build a lower ST pivot high.  We will need two more trading days under that line to lock in that lower high.  This morning the push under 1935.25 down to 1925.75 established the minimum necessary to potentially set up a higher ST pivot low and again we are back to the 1937 tractor beam line that has been used to kill premium on options that were sold on the takedown.

The way the pros usually do things is to build pivots by cascading timeframes.  We already have a narrowed VST range between 2011.75 and 1889.50 and those two numbers define the current constraints as we watch to see where the next ST pivots will eventually build.  The bull and bear stops are now sitting just below and above that range, respectively, so if the pros want to scare up sellers below or buyers above–that’s where they will go.

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Zooming out to our weekly bar roadmap…

The key to focus on here are the four bar pivots.  If this week remains above 1821.75, that will become the latest weekly bar pivot low (#6 on the chart above).  Note that the current ST pivot high candidate at 2011.75 won’t work as the next weekly bar lower pivot high since there are only three lower range weekly bars to the left, so at some point we could eventually see another push back up to accomplish that goal.  There are lots of ways for that next lower pivot high to eventually unfold, so we just have to wait and see what the pros have in store for us going forward.  Note that it took eleven weeks to eventually build a lower weekly high near the double bottom at point 3 on the chart above, so these higher timeframe setups can sometimes take quite a while to unfold.

The key lines on the weekly chart are confirmed resistance at the 2025 IT primary trend line and the fledgling weekly pivot low at 1821.75.  Price is currently trading near the approximate midpoint of that range ((2025 + 1821.75) / 2 = 1923.50).

Remember, the close-in stops are located at 1889.50 below and 2011.75 above as we continue to meander sideways in the aftermath of the orchestrated takedown to 1821.75.  If we do get a new 4-bar weekly pivot low at the Friday close along with a 5-bar pivot high on the daily bars, the next order of business once the next ST pivot low is locked in could be building a 4-bar weekly pivot high–barring a collapse to the downside, of course.

Wave four type declines generally confuse most traders–but not us.  We definitely saw this coming and so now just have to tread cautiously as we wait to see where the bottom will eventually form.  ST and IT trends are down under 2037.25 and 2025 respectively, so path of least resistance is down and odds continue to favor bears as we watch the remainder of this week to see if the pros will allow 1821.75 to build as a 4-bar weekly pivot low.

…my .02

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ES Update

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We are one day away from the FOMC announcement and two days away from quadruple witching OpEx (options expiration).

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As I pointed out in my last post, the pros have now had the market locked in a volatility strangulation zone between 1983.50 and 1889.50 for 14 trading days!  If they were selling options after the takedown to 1821.75 as I suspect, this is exactly what one would expect as most of that high volatility premium has now evaporated.

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Let’s take a look at the big picture in light of the recent developments and examine the technical setup starting with monthly bars.  The takeaway from the chart above is that the secular bear market ended at the upside breakout of the descending red trendline.  If you look at the chart carefully you can see two identical but parallel rectangles that show time and price projections using the slope and duration of the advance from the bottom at 506.25 to the initial trendline breakout, which was +822 points and 42 months in the making.  I drew that projection on my charts at the VLT trendline breakout back in September of 2012 and so far the trajectory has been amazingly accurate.

As of today, we are 36 months and were +788 points at the 2117 peak, so though we are very close to the initial projection–there could be perhaps another six months to go before we achieve the goals, assuming that the projection holds, of course.

At the recent 2117 double top we also didn’t get the sort of unanimous spotter signals that one would be expecting to see at a major top–so this appears to be a wave four type pullback, which would be perfectly normal after such an unrelenting advance.

Monthly bar traders will be using last month’s closing price at 1960 as a bull/bear line until the end of the current month.  If price were to take another plunge south, the obvious downside target is the rising VLT (very long term) trendline currently in the 1650 area–but a trip down to that line might make a recovery back up to hit the time and price objective of 2149.25 by March of 2016 quite difficult.  It should be emphasized that nothing says that the time/price projection must be met–but you must admit, this market has been on a (manipulated) march toward that target that almost no one would have believed back in September of 2012 when I posted here that the breakout at that time was a very big deal and that the bear was over.

So, for the sake of the big picture discussion keep 1960 in mind as a place where institutional-level selling pressure is off above that line but would return below.  The August bar range is likely far too wide to reach an upside breakout by the end of this month so the most likely outcome would seem to be an inside bar with an upside bias so long as price can remain above 1960 and the August low at 1821.75 remains intact.

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With the monthly bar perspective in mind let’s turn our attention to the weekly bars, which have served as a perfect roadmap for the pro’s intentions since the start of the Obama administration…

As I have pointed out many times before–the key to understanding the chart above is the concept of four bar pivots, which are marked by red and green dots.  On only five previous occasions has a pivot low been taken out–and on all but one the recovery was immediate.  The one we are interested in studying here is point #2, which seems to be the most like what we are seeing at point #6 (which is as-yet still unconfirmed as a pivot).  If one uses a five impulse wave analogy then point number 3 was the bottom of wave two and what we are looking for next could be the eventual bottom of wave 4 with wave five (up) still to come.  We would still need another full week above 1821.75 to confirm that as a pivot low, so this is watch and see time –especially with OpEx coinciding with the FOMC shindig.

The key numbers ahead are resistance at 2025 and potential new pivot low looming at 1821.75.  The pros have a tremendous leverage advantage after the Blitzkrieg takedown from 2117.  If I were pulling the levers I think I might rally back to 2025 area to build both a lower pivot low at 1821.75 and also a corresponding lower pivot high.  Note what happened between points 2 and 3 above when the last lower high was built–yep, that’s right…there hasn’t been a lower 4 bar weekly pivot high built since October of 2011!  I have placed a green arrow there to show where the last breakout buy occurred and I have also placed a red arrow down at the recent break to show the most recent candidate for the other end of that amazing move.

The pros have this market in an intermediate-term bearish mode now below 2025 and have thus far avoided creating either a lower weekly pivot high or even a ST pivot high …so the bears who shorted the break under 2025 are still on board at this point likely with wide stops.  It would stand to reason that the pros might want to flush those guaranteed buyers by popping out to the upside of the volatility strangulation zone above 1983.50.  What is unknown at this point is whether they would later pull back (perhaps near 2025 resistance?) to create the uncertainty of a ‘W’ (bearish) versus ‘V’ (bullish) pattern–but that is what I would do if I were pulling the levers.

Short-term and intermediate trends remain down under 2037.25 and 2025 respectively, so bulls in those timeframes would have to be very cautious in working any counter-trend play here.  I pointed out the buy-to-cover target at 1851 on 8/24 and I assume that is where the pros are in their current trade with 1821.75 as the hard deck.  If so, guaranteed buyers are sitting above 1983.50 up to 2025 resistance, but the trailing profit stop for that same trade would now be moved up to 1889.50.  So, for those looking to try to game the FOMC/OpEx setup, those are the primary points of interest from the pro’s perspective.

…my .02

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Option Rollover Day

Volume shifts from the September 2015 to December 2015 futures option contracts today with a difference of –9.25 points from ESU15 (September) to ESZ15 (December).

All previous chart numbers have been adjusted to reflect the new contract pricing—so, for example, the intermediate-term primary trend line from the expiring September contract at 2034.25 now becomes 2025, and so forth.

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So far this is going as expected considering the thesis put forth in my last post that the pros intentionally took this market down for three straight trading days (8/21, 8/22, and 8/24) with the express intent of sweeping all bull stops above the long-term primary trend line at 1781.75

The volatility premium for writing options was huge during the takedown and guess who likely wrote the majority of those options sold during that event?  That’s right, the same folks who intentionally took the market down.  If they were long puts and short stocks going into the takedown then it makes sense that they would have covered once those stops were swept and then start selling premium in the panic.  If so, then it also makes sense that the market has been parked and continues hovering around the void line at 1937 as they run out the clock on the premium for the options they sold.  Today is rollover day and expiration is next week so we’ll see how this goes but it helps to understand why they do the things they do–because the average retail trader out there is likely totally lost and confused at this point.

If they continue to constrict volatility between now and expiration next week–we could see the reverse of the August expiration setup where the pros choked volatility and then scooped up as many crash puts as they could ahead of the takedown.  It’s still a little early to predict that, but if the paradigm continues and this was just an engineered takedown–that is what I would do if I were pulling the levers.

The volatility strangulation zone is currently between 1983.50 and 1889.50.  Sometimes I laugh out loud at the brazenness of these characters and that was the case when they stopped the rally just short of setting a new lower ST pivot high.  If they are trying to keep the bears engaged as long as possible before a moonshot–that’s how you do it.  Right now, the ST trading range is huge (2094.50 to 1821.75).  If they were to set a new lower high the technical stops would move down–as it is, most bears are likely trailing fairly loose stops so just keep that in mind.

The short-term and intermediate trends are down under 2037.25 and 2025 respectively so the bears technically have the advantage below those lines –but keep an eye on the pros here when it eventually breaks out of this volatility strangulation zone between 1983.50 and 1889.50.  The paradigm that has been in place since 2009 suggests that they may be planning to head back up –but 1821.75 would be their hard deck on that potential trade, with a potential accumulation zone between that number and 1937-ish.

Heads up between now and next week’s expiration…

…my .02

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ES Update

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The pros again intentionally took the futures down overnight…so what might they be up to?

You may remember me pounding the table near the highs and warning about the dire implication of a break under IT support at 2034.25.  My initial buy-to-cover target for that downside breakout was 1860.25 and the actual low came in at 1831 on a slight overshoot.

Take a look at the daily bar range chart above and let’s try to guess what the pros might be up to here since that target was hit…

If they began covering between 1860.25 and 1831, as I pointed out, that would certainly explain the upthrust to 1946.25, which was the top of the old support void (which I will explain later in this post).  We got the up/down volatility there which could be explained as an accumulation zone between 1860.25 and that 1946.25 resistance.  In my last post I pointed out that they needed at least a 2-day top to set the VST range and set up the pullback we are seeing now–and that came at 1922.75.  There have been two gap down openings since–and gaps always show intent from the pros.  They clearly have wanted to take this down and are doing so in the cheapest and most efficient way possible, which is using the futures to force arbitrage on the cash market.  If that theory is correct, the pros might be counter-trend long from 1860.25 area and using 1831 as a hard stop.  If so, then what we are seeing could be accumulation during a squeeze of the longs.  Now it must be said here–that is most decidedly NOT the trend following way of looking at this, but rather is an extrapolation of the market-rigging paradigm we have seen in place since 2009.  This current pullback could be the ‘tell’ that lets us know if this is a stop sweep/reversal setup or if we will eventually get another leg lower.  The hard deck for the pros would be 1831, which is now the short-term range bottom.  The current VST range top at ES 1922.75 will not work technically as a short-term pivot high–so from here the pros would need to break back above that line eventually to set the next logical event in the sequence of lower high/lower low…which is a lower ST high.

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I think this pullback might be all about 1946.25, and here’s why…

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The pros are all about running stops…it’s what they do and they are very good at it.  Take a look at the weekly chart above and pay special attention to the lows of the bars since the 1791 long-term pivot low.  The push down from the recent high has already pierced the low of every weekly bar since ES 1791 in October of 2014.  The vast majority of those accumulated stops were under 1946.25, which is where the top of the old support void was located (see I promised I would explain that).  So, unless the pros are planning to continue lower to take out the long-term low at 1791, all stop-running objectives above 1791 have been accomplished.

I think 1946.25 can work as a bull/bear line as we test this thesis in the coming days.  The intermediate trend is down below 2034.25, but let’s keep an eye on the action around the bull/bear line at 1946.25 while keeping the thesis above in mind.

…my .02

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