ES Update

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(click image to enalrge chart)

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Those of you who have been reading my commentary for a long time know that I am not usually a fan of countertrend trading–and this current rally leg is a perfect example of why…

Since the last ideal VST buy way back at 1035.75 on August 31, 2010 (1040.50 on ESU10 contract)…this market has given absolutely no quarter to countertrend bears.  It has been on a relentless march higher; flipping primary trends in succession and ultimately the macro trend to a fully bullish ‘Bull 10’ rating.

Bull 10 markets generally pull back to rising ST primary trend support as gains are consolidated—but this rally leg has not touched ST primary trend support since the initial breakout on September 1st.  There were four top spotter signals in quick succession (only one was confirmed—but later reversed before achieving the ST primary trend pullback objective).  That is not unprecedented—but is highly unusual.

ES is now nearing the top of the heavy resistance band at 1175 which represents the initial bearish entry points of the April 2010 sell-off, which dropped from a top spotter high at 1207.75 to a bottom spotter low of 998.  ES is now up over 17.5% since that July 6th bottom spotter!

The ‘news and noise’ has been consistently negative during this entire rally leg and, as usual, it has been tough for most to reconcile what ‘feels right’ with the opportunity at hand.  This is an excellent example of what makes Stops and targets so valuable as a tool.  It is immune to human emotions and just continues to do its thing and calculate odds and probabilities based on what ‘is’, rather than a false perception of what should be.

It looks as though this market is close to reaching the point of recognition where the news and noise may begin to turn positive if the rally continues.  The US mid-term elections and a key Fed decision looms in the next few weeks.  Those event dates would have been known and obvious to professionals at the July turn, and the market is now in a position to have run nearly all the bears back to their initial stops.  It is possible that we are seeing a front running of those early November events, but time will tell.

As for resistance, this is about as strong a setup as it gets for the VST and if the market is going to stall and at least pull back to rising short-term primary trend support, then we should see something develop near this general area.

For those correctly riding ideal long trades since 1035 or 998—there is nothing to do here except push up the trailing profits stops (S&T recommends 1160 for ST partials) and enjoy the ride while waiting to be stopped out for big gains.  At some point, this market will pull back—and when it does, I would expect to see top spotter signals form on the indexes and then confirm.  There is a current spread of about 40 points between ES and the nearest primary trend support and that is starting to get fairly wide.

Next major target higher is at 1203 if a breakout above the resistance band can be sustained.  On the downside, the next likely VST target would be bull stops under 1145.50—so about equal net gain potential in either direction from the top of the resistance band.

All trends remain up > 1138.50

…my .02