ES Update

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The underlying theme of my last couple of posts has been… ‘look out bears, it’s coming’!

Hopefully, my last post near the close on Tuesday helped someone to get out of the way before yesterday’s monster rally.  The pros decided to take it down just a little further than the 1926 number I posted on Tuesday to what I thought was a very nice touch on their part, which was a .25 dip under the provisional low to trigger automated selling from the black box programs just before gunning the futures and setting up an outside bar squeeze on the daily chart.

The theme I have been hammering on was to watch out for the support void under where the last gap was filled at 1922.50.  That gap and the IT support trendline (now broken) were the downside targets for the move down from 2014.50.  Once the pros clear everything out down to a void on a pullback against a macro trend, there is no more profit for them to run stops at that point to the downside without imperiling the macro paradigm.   I thought they might try to protect that provisional low at 1918.25–but really, the tiny dip below to 1918 was a brilliantly shrewd move from the pro’s point of view and that yielded a stop sweep /reversal setup in the VST (intraday) timeframe.  That tiny dip has reset the short-term cycle clock, however.

The pros lit off that move yesterday for a reason, and my speculation has been that if I were the one pulling the levers that I would be looking to squeeze the bears back to their stops.  The close-in bear stops are now sitting just above 1971 with the next tier just above 1979.25

 

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As I type, ES has rallied back to the Stops and Targets short-term primary trend line, which as I have pointed out before coincides closely with the September monthly close at 1965.50.  If they push it back above 1965/1968, that monthly candle turns white again and bears will again need to step aside–but right here could be a perfect spot to reenter short if one maintains tight stop discipline.

 

 

 

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The most brutal move in the pro’s arsenal to thwart system traders is the dreaded ‘outside bar’, which assures that both bulls and bears get punished.

Lets take a look at what they have done so far using that strategy…

In the daily bar chart above we see that is exactly what happened yesterday as the tiny dip under 1918.25 took out Tuesday’s low of 1924.50 and yesterday’s high at 1964 took out Tuesday’s high at 1956.25.  That was a double stop run.

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So, moving out a degree of magnitude, check out the last weekly bar low and high at 1918.25 and 1978.25 respectively.  Yesterday’s low took out the low–so the question is will the pros go for the high now above 1978.25?  That’s where the next higher layer of bear stops is sitting.  As of now, though, we have a lower high and lower low which is bearish.

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Moving out to the monthly bars, check out what the pros have done after the last two black candle bodies (see yellow highlights).  Yep, you got it.  On both occasions they first baited in the bears and then reversed to a brutal bullish engulfing candlestick.  That is what traders have been conditioned to expect–so remember the importance of the last month’s closing price from the perspective of institutional traders.  Underneath that line is bearish–but a pop above turns the monthly candle white, and professional bears will step aside accordingly.

So, just as is pointed out by Stops and Targets…it is all about the short-term primary trend line here.  Momentum is bearish below but would reverse back to bullish above, so stay nimble if you are playing the range game.

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One last thing to point out is the summary page from yesterday’s close.  There were 822 new bottom spotters detected yesterday.  That’s a bunch, but curiously no indexes have yet generated bottom spotters.  No sure what to make of this information just yet–but it is potentially noteworthy.  Next step is to wait and see how many of those confirm–or are invalidated.

Okay, today is all about the primary trend line at 1968 and the September close at 1965.50 and the bear stops resting just above.  This could be the perfect place to reenter short, but ya gotta watch out above if the primary trend line is taken out because those bear stops represent guaranteed buyers.

…my .02

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