(click image to enlarge chart)
I have discussed the extreme importance of the breakaway gap from October 2008 in previous posts.
The chart above shows the location of that gap (parallel blue lines) and how it has continuously attracted price since the fill (and subsequent sell off) in October of 2009.
That gap was the initial price target from the March 2009 lows. Since then, it has repeatedly attracted ES price in a sideways consolidation pattern followed by a breakout and then a back test of that gap area in recent days.
The two prominent features of the chart above are the aforementioned gap and the long-term bullish trident channel (shown in dark green). It remains to be seen which of those two technical guides will assume control here in the short term.
A breakdown below the gap will signal a failure of the recent breakout and could draw aggressive selling. If that were to happen, then it seems reasonable to expect an eventual test of the lower rail of the trident channel.
On the other hand, if the present pullback is merely corrective in nature, then a resumption of the macro uptrend would suggest an eventual target at the top rail of the trident channel.
Either way, the broad market has been building an incredible amount of stored energy in the present consolidation zone around the crash gap—and when this consolidation begins to trend again—it could be spectacular in either direction, with eventual targets at either the top or the bottom rail.
The S&T primary trend lines will keep astute and disciplined traders on the right side of the eventual breakout.