Take a peek at the screen capture above from Stops and Targets for the S&P 500 Futures symbol ‘ES’ and concentrate on the ‘range envelopes’ data at the top center of the analysis page.
Using the ‘last range signal’ dates lets start from the oldest signal and then work towards the newest…
On 29-Jan-18 the market generated a counter-trend pullback signal at 2883.50–that pullback went to 2534 and set up the long-term trading range, inside which the market continues to meander.
On 03-Apr-18 we got counter-trend rally signals on both the intermediate and short-term at 2552.
Looking at the arrows to the left of the range envelopes we see a mixed bag there…
The sideways green arrow ↔ next to the long-term range indicates a trading range with a bullish bias (above the long-term stop/reverse line at 2563.25).
The sideways red arrow ↔ next to the intermediate range indicates a trading range with a bearish bias (under the intermediate stop reverse line at 2713.50).
The downward red arrow ↓ next to the short-term range indicates a bearish trend in that timeframe (under the short-term stop/reverse line at 2679.75).
All-in-all, it’s a pretty messy market here as we await an eventual escape from this long-term consolidation after the significant technical damage inflicted between 30-Jan-18 and 06-Feb-18.
The major takeaway from the analysis above is that the hard deck for bulls is at 2534. Knowing that…where do you think the pros would love to go to begin cashing out on the short positions they undoubtedly hold? Yep, the bull stops are currently all bunched up underneath that line. If the price is forced under 2534–all hell would break loose on volume as disciplined traders are forced to sell. None of that is lost on the pros and that is the absolute essence of the weekly bar stop sweep/reversal paradigm that has been in place since 2009.
If we get a push under that line, I will lay out the setup to test that paradigm for what would be the 10th time since 2009.
Remember the paradigm rules… if price were to break below that line at 2534 and then recover back above after the stops are swept–then we could have another outstanding buying opportunity. If, on the other hand, price were to break under that hard deck at 2534 and then was unable to break back above and hold then the paradigm would end and the bears would be unleashed.
None of that matters here, however, if the current counter-trend rally from 2552 catches a toe-hold and breaks out of the short-term bearish trend. The first signs of that are here–but we have all been conditioned at this point to expect another smack-down.
Let’s take a look at the chart below to see how this setup can be played from here…
click image to enlarge
On the chart above we can see all the same information from Stops and Targets displayed–but I want to point out a few other subtleties…
On the chart above I have labeled the major signal areas starting from the top at 2883.50, then the IT buy at 2534, followed by the short-term range pullback followed by a rally at the red and green arrows, then the counter-trend sell at 2807.25 intermediate range top, followed by short-term and intermediate sell signals, and then the CT buy at 2552 that corresponded to a Long-term support bounce off 2563.25.
Now, let’s take a look at the subtle stuff since 2552…
Savvy traders look for a breakout above the last lower high in a downtrend. Why? Because opposing traders who are riding winning trades (in this case bearish) tend to lock in profits by moving stops down with the lower highs. Knowing that, take a look at the bars from the CT SELL signal at 2807.25… Imagine that you sold short right there. Now imagine that each day you pushed your trailing profit stop lower using the previous day’s high. That worked great for 5 days and then the pros swept the bear stops in a quick head fake before heading down for the next leg from 2713.50. See how that works? Standard operating procedure for the pros. Happens over and over again in these breakaway moves. The up-down-up-down shakeout move just before the bottom at 2552 is the pros baiting bears to first sell and then forcing them to buy to cover–which affords an excellent opportunity for the pros to exit positions under cover without moving the market against themselves. The last plunge down to 2552 was the pros setting up a bargain-priced buying opportunity for themselves as bulls and bears both sold the break under 2591.
Now, with all that subterfuge behind us–the first tell for savvy traders was the breakout above the last lower daily high at 2618.75. A move above started buying as bears cover. Momentum buyers are in at that line trying to ride the pro’s algorithms.
The first obstacle is resistance right here at 2652. If price can overcome that resistance this line becomes the first short-term counter-trend buy signal (see Stops and Targets also). If that happens then guess where bullish traders will move their stops tomorrow? Yep, that’s right they will move them to the last higher low, which would be today’s low at the close. See how that works?
So, what would be the next target of this current pop if the rally can get past 2652? The pros know that more bear stops are sitting above 2679.75. If the pros push price to there, those bears will be forced to buy. What a coincidence–the pros just happen to have some inventory accumulated lower that they will be happy to sell. See how that works? This game is predicated on baiting traders and then maneuvering them into taking the other side of the pros trades. So, when you look at charts–set aside your feelings and instincts, but instead ask yourself always–where would a pro who is sitting on a perfect entry (because they always are) go next?
When the pros are ‘pushing a move’, you can usually tell by the consecutive higher lows when going up–and the consecutive lower highs when heading down (occasionally interrupted by a stop sweep head-fake to shake off other traders). Try looking at your charts that way from now on and see if you can spot the ‘pushes’ yourself.
It’s very early in this short-term bullish move and the only trailing stop that makes sense currently for counter-trend bulls is at 2618.75. That would change if today’s bar closes positive and the low at the close is higher. Wash-rinse-repeat tomorrow until the last higher low gets broken to the downside. Again, see how that works?
So, the bottom line here is that we are currently in a long-term trading range (with a bullish bias) so long as price stays above 2534. If price were to fall below that ‘hard deck’ line, then we could see massive selling volume kick in as fear of the long-term bull market reversing would be prevalent. If it goes back down there then we are going to get test #10 since 2009 of the Weekly Bar Paradigm and I will explain it all again if/when we get there. For now, we are seeing the start of a fledging short-term rally. First resistance is at 2652 then next are the bear stops resting above 2679.75. The big unanswered question is whether the pros want to eventually kick open the trapdoor under 2534. First clues will come by watching the short-term, as outlined in detail above.