ES Update

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(click image to enlarge chart)

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The last trendline break/reversal line at 1040.50 mentioned on the August 31st post worked out nicely for an ideal VST (very short term) countertrend long trade through the trendline resistance breakout at 1067.50 and well into the resting bear stops.

This morning finds ES up against VST resistance at 1084.74, and just below the key Stops and Targets intermediate primary trend line–presently at 1086.

Yesterday’s bear market rally was tipped off days in advance by the bottom spotter signals detected on August 25th.  Those gave a psychological tip-off that something was potentially up under the surface and it was time to loosen the reigns on existing short trades.  For those with Signals Matrix access, go to the confirmed bottom spotters column, and down on the very bottom click on the total number to bring up a report of all current bottom spotter signals.  Look at the ‘detected’ date column under August 25th, and check out the rally leaders and the subsequent gains on those individual equities.  Those are your rally leaders—and the ones to watch for clues about sustainability.

Now, we have to see if that rally was just the bear market type—or if it leads to something more substantial for the bulls.

My personal read on this market is that it has been an intermediate bear market–and so now we are coming back into the area where it could eventually turn back down, if the intermediate bear lives…

The first pullback number to watch is VST support at the trendline breakout number of 1067.50.  That is what has been working recently.  The reason is that is where higher timeframe bears started to get squeezed and where momentum bulls bought the breakout.  To maintain a maximum squeeze, that is where ES needs to stay above.

I have also drawn in a VST channel in purple that could be helpful depending on what comes next.

The Stop and Targets intermediate primary trend line is what I am focused on now.  If ES can break above and hold, then all trends flip back to bullish.  Conversely, if this is a bear market rally then somewhere in this neighborhood, we could see a turn back down once the squeeze is finished.

The S&T primary trend lines are compressed into an unusually tight range of only 15 points–and that is a sign of the sideways nature of a market that has been stuck in a broad trading range between 1014 ad 1125 since the July 4th rally low.  As always, the trick is to come away from the primary trend lines on the right side and for now—the IT primary trend line at 1086 area is defining the bullish/bearish tipping point.

The number to watch on the first pullback is 1067.50.  If that fails to hold, then 1061.75 is next (note that the long squeeze bar started there).  To the upside, S&T’s IT primary trend line is at 1086 and then the top of the purple channel would be next with the next level of bear stops sitting just above 1098.50, should it break out to the upside.

…my .02