ES Update

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The pros did a great job fishing for bears yesterday, as I suspected they might.  For a brief moment it looked like the bears might finally get some traction as ES approached the key support line at 1333.75–but 1334.25 was as close as they got before a gap over 1338.25 ignited a ferocious squeeze back up into the capitulation zone above 1356.50.

At the last confirmed spotter signal (that retraced only the minimum target to ST support), I commented that sentiment didn’t feel right for a top based upon my observation of retail bears.  Those guys have been constantly shorting and covering since this impressive squeeze first started back at 1195 area and was pointed out at this post.

When a turn comes, typically the side that has been squeezed finally gives up and capitulates–often with painful losses.  The squeezed at that point become demoralized and too afraid to continue trying to pick a counter-trend entry.  It is only when the markets finally run out of easy money that the momentum stalls–and sentiment peaks in the opposite direction.

Now that the pros are finally pushing into the capitulation zone–many of those previously-defiant bears are going to be forced to cover.  Those covering bears represent guaranteed buyers and the other side of the trade for clever pros who accumulated near the lows and have been driving this higher in anticipation of this eventual payday.  The recent bear fishing near the range top is just the pros trying to maximize the take by sucking in as many as they can just before the final push into capitulation –and that’s where we are now.

I have many times before posted the following video to illustrate the emotions a typical trader feels who is trapped on the wrong side of a trade.  It is humorous, of course–but also perfectly illustrates the extremely predictable stages of sentiment that the pros capitalize upon…

Those who have been trapped in  squeeze really don’t want to hear they have been wrong.  They know that, and their account balance reflects the errors.  What they have been searching for these past months is ‘hope’ and they often find it from any of the innumerable characters out there on trading boards who have led so many people astray.

Successful trading requires having the proper bias at the proper time–and it helps greatly to have the realization that the pros use every trick in the trade to fool your senses.  What ‘feels right’ almost never is when trading.  That’s what Stops and Targets is all about.  Providing an unbiased judge of trends and trading strategy completely free of the human emotions displayed in the video link above.

You guys that have been reading me for years have heard this all before and it is easy to search the ‘Big Picture’ archives near previous highs and lows to see what I was saying in similar setups.

Bottom line is that bears have now reached a ‘point of recognition’ where all technical hope has been essentially obliterated–and so now we watch to see how high and fast the breakout from the old long-term range goes …fueled by previous sellers who now become forced buyers.

Next major resistance above is between 1362 and 1364, and next higher resistance is at 1375.  To break the VST/ST range and start to flip trends–ES would need to trade (and hold) below 1333.75

…my .02

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