I pointed out the ideal buy zone setup in my last post with a target of 2071.50. That target has been achieved and we are back to a countertrend bearish setup under that line–so long partials were rewarded from 2030.50 to 2071.50 and the screen capture above explains the options here.
The daily bar/range chart above tells the whole story…
The broad market has been in a LT trading range between 2100 and 1804.75 for almost a year now. The first top at 2100 came on May 19, 2015 and then double-topped at the exact same number on July 20, 2015. We then got the big plunge from the top spotter alerts down to 1804.75 on August 24, 2015–and that was the range where the market traded until a stop sweep/reversal of the bull stops underneath on February 21, 2016 and then a stop sweep/reversal of the bear stops above on April 20th.
We can surmise from the summary above that the pros distributed around the 2100 area and then again just below that line at 2093.25. They covered and went long in February near the 1793.25 low, which was just low enough to trigger capitulation of the long-term bulls under 1804.75 before reversing and then driving the last of the bears into capitulation by popping just above the 2100 line. That’s brutal stuff there folks…but it’s how the pros play the game.
Now we are in an interesting situation here…the pros have raided the last of the forced buy stops above 2100, which is also above their distribution line–so if they are done on the end-to-end squeeze from 1804.75 to 2100, there would be absolutely no reason to go back up there again unless the intent is to breakout and run to new all-time highs. So, we have some counter-trend bearishness creeping into the market here centering around the 2071.50 line shown by Stops and Targets but there are also two sets of prominent trident channels setting up.
Let’s start by explaining the long/intermediate channels and then move in to the short-term channels…
The LT/IT trading ranges will both be 1793.25 to 2093.25 after the close today. I have already pointed out the dashed green bullish trident channel, whose centerline was guiding the ES squeeze perfectly until the stop run above 2100. The centerline of that rising IT bullish channel is currently near 2102 and is about 40 points above the current price as I type.
There is also a provisional IT bearish channel that I have now drawn in using dashed bright red lines on the chart above. I say ‘provisional’ because that top at 2105.25 has not yet been in place long enough to qualify as an official IT top–but the provisional channel shows where price likely will NOT rise above in order for that trident channel trajectory to eventually confirm. So, just to be clear–for bears to have a shot at something more than just a relatively shallow pullback here–that top rail of the provisional IT bearish channel should not be breached.
Now, let’s move in to the short-term timeframe and look at the two trident channels there…
The ST bearish channel that I pointed out from the 2105.25 top is marked as a dark red parallel dashed lines. That is a valid channel and is what was being used to drive the trajectory into the recent ideal buy zone (shown as a bright green shaded rectangle). We got the expected bounce there and have reached the 2071.50 S&T resistance target, which is in play as I type. As I pointed out on the IT channel–the top rail of that descending channel should NOT be breached if the bears who are playing the stop sweep/reversal from 2105.25 are right. That descending top rail is currently at 2093 as I type.
There is now a provisional ST bullish trident channel also displayed using parallel light green dashed lines on the chart above. If bulls are right from the ideal buy zone –the bottom rail of that rising channel should not be breached. The lower rail of that rising channel is currently at 2041 as I type.
So, basically we have a ST triangle forming here between the descending bearish top rail at 2093 and the rising bullish bottom rail at 2041–with perhaps an earlier tell for bears to eject if we get a break above the descending provisional IT top rail at 2082.
All of that lines up with the S&T strategy suggestions centering around 2071.50–so keep an eye on the edges of the trident channels for a clue to the next directional breakout.
Want to be notified within seconds of each new post here at Big Picture Commentary? Be sure to enter your email address in the ‘Email Notification’ area at the top right of this page.