ES Update

Screen Shot 2015-09-01 at 9.46.01 AM

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The pros again intentionally took the futures down overnight…so what might they be up to?

You may remember me pounding the table near the highs and warning about the dire implication of a break under IT support at 2034.25.  My initial buy-to-cover target for that downside breakout was 1860.25 and the actual low came in at 1831 on a slight overshoot.

Take a look at the daily bar range chart above and let’s try to guess what the pros might be up to here since that target was hit…

If they began covering between 1860.25 and 1831, as I pointed out, that would certainly explain the upthrust to 1946.25, which was the top of the old support void (which I will explain later in this post).  We got the up/down volatility there which could be explained as an accumulation zone between 1860.25 and that 1946.25 resistance.  In my last post I pointed out that they needed at least a 2-day top to set the VST range and set up the pullback we are seeing now–and that came at 1922.75.  There have been two gap down openings since–and gaps always show intent from the pros.  They clearly have wanted to take this down and are doing so in the cheapest and most efficient way possible, which is using the futures to force arbitrage on the cash market.  If that theory is correct, the pros might be counter-trend long from 1860.25 area and using 1831 as a hard stop.  If so, then what we are seeing could be accumulation during a squeeze of the longs.  Now it must be said here–that is most decidedly NOT the trend following way of looking at this, but rather is an extrapolation of the market-rigging paradigm we have seen in place since 2009.  This current pullback could be the ‘tell’ that lets us know if this is a stop sweep/reversal setup or if we will eventually get another leg lower.  The hard deck for the pros would be 1831, which is now the short-term range bottom.  The current VST range top at ES 1922.75 will not work technically as a short-term pivot high–so from here the pros would need to break back above that line eventually to set the next logical event in the sequence of lower high/lower low…which is a lower ST high.

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I think this pullback might be all about 1946.25, and here’s why…

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The pros are all about running stops…it’s what they do and they are very good at it.  Take a look at the weekly chart above and pay special attention to the lows of the bars since the 1791 long-term pivot low.  The push down from the recent high has already pierced the low of every weekly bar since ES 1791 in October of 2014.  The vast majority of those accumulated stops were under 1946.25, which is where the top of the old support void was located (see I promised I would explain that).  So, unless the pros are planning to continue lower to take out the long-term low at 1791, all stop-running objectives above 1791 have been accomplished.

I think 1946.25 can work as a bull/bear line as we test this thesis in the coming days.  The intermediate trend is down below 2034.25, but let’s keep an eye on the action around the bull/bear line at 1946.25 while keeping the thesis above in mind.

…my .02

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