(click image to enlarge chart)
ES is challenging long-term primary trend support at 1079.75.
I had a very good technical question yesterday asking about relative trend strengths in Stops and Targets, and to sum up my answer…the longer the timeframe—the more powerful the trend. Formulaically: IT > ST and LT > IT. There are far more portfolios geared to long-term investing than to shorter terms, and so those are the big fish in the market and when they start to buy and sell, big things can happen.
What we have been seeing lately (in my opinion) has been a battle between a fledgling IT decline and an established LT uptrend, and I have alluded to that that many times in recent posts.
As I type this morning, price is sitting on long-term primary trend support at 1079.75. The ‘right’ trade since June 21 has been short from intermediate primary trend resistance (see red arrow on chart near 1116). Long-term support is the partials cover target and additional trailing profit stops are set just above short-term primary trend resistance. The idea is to press the IT short trade into LT support to see if it cracks. If not, then partials are taken and the process of reversing the position occurs, if higher timeframe support holds.
The bears have a shot to break this wide open right here by taking out long-term primary trend support. There is no significant support below until the 1047 area. Just below there, the final support trendlines are clustered relatively tightly between 1032 and 1042 and the big prize for bears would be to break the LT structural support levels below the February 2010 lows.
The short-term trend channel I mentioned in my last post was broken yesterday–and that was a clue that the IT bear is in control here. There is no reason to be long below 1079 (in my opinion) and should that long-term support fail, then the downside could come quickly.
On the other hand, if ES can climb back above 1079 after a poke below, then the IT bears would be put on the defensive again as the possibility of a bounce from LT support would again be in play. The IT bears are in good shape here, though, with partial profits locked in and trailing stops in profit.
I mentioned previously that once a long-term bear market begins—the daily bar would most likely not again close above the long-term primary trend line while the LT bear is in progress. That is the measure of a true trending long-term bear market.
This is an important area here at 1079 and though nothing says the trend has to break away immediately from the line—once it does, then the new LT trending move could be starting.
The obvious VST bull/bear line is now at 1079.75. Long trades are favored above, and short trades favored below.