(click images to enlarge charts)


What is happening in the overnight futures is exactly what I was alluding to in my last post…

Buyers did indeed step in at the ES 1079.50 long-term buy signal.  We are seeing an extraordinary overnight gap of > 400 Dow points, > 80 NQ points, and > 52 ES points.

When the futures opened last night above the VST bull/bear line that I mentioned in my previous post at 1115, it was a sign that a gap and go squeeze was underway.  The initial target for this type of move may be the late bears who chased the break under 1157 expecting a linear move down.  At the open, virtually every one of them are going to be sitting on losses and forced to either exit or to stick around and try to ride out the squeeze.

The extraordinary overnight move is now hesitating at around the IT primary trend line in the general area where a minimal technical short entry would have been made near 1157 before the one-day crash.  That move assures that anyone who chased it with a short entry below there, and who did not cover on the push down through the LT buy signal or at the VST bull/bear line cross, is now caught in a squeeze.  There is indeed a method to the madness, and the pros know exactly how to turn the screws.

There was a 3 hour escape window between 1123 and 1130 after the Globex open to take the initial exit on the opening gap—but once the hourly bar breakout occurred at 1131, then it was off to the races for the futures.

The yellow highlight rectangle shows the next higher resistance target between 1176 and 1184.  The first stops for professional bears are likely sitting just above that shaded area.  I have extended the broken VST trendline to the right to show where a back-kiss would occur within that rectangle.  That now broken VST trendline was the primary feature for the last uptrend channel—and so it would be the target most likely to draw renewed shorting (in my opinion) if the ES were to get there and then turn back down.

There will be a good many confused traders after what has occurred overnight—but technically, it makes sense to see what we are seeing based upon the LT support touch confirmed by S&T and the trendline I pointed out on the daily chart.

The ES appears to be stuck between two powerful forces here; the extraordinary number of top spotters at the 1216.75 high and touch of long-term support on the takedown.  The LT support currently serving as the buy signal and the resistance pointed out above, starting with the IT primary trend line, is coming into play to test the viability of that buy/cover partials signal.

Stops and Targets has been dead on, as usual, with the signals…

1) We saw a top spotter signal at 1216.75
2) Then a top spotter confirmation at 1207.50
3) ST and IT sell signals were generated to take large accrued profits from trending long trades
4) Optional sell short signals were issued after the trend reversal within the ideal sell zone window
5) Protective trailing stops were issued on those trades
6) A long-term buy signal was generated at the 1079.50 primary trend line
7) Cover short partials signals were generated for ST and IT trades at that same 1079.50 line

Now S&T is hovering around the IT primary trend line with the ST primary trend line above at 1174.  IT and ST bears that entered at the primary trend break likely profited handsomely on the cover partials signal, and now are faced with a protective stop out near break even on the balance.

The spotter signals did their job alerting the huge pullback to LT support—and now we await the resolution of this rally to see whether it is a bear market squeeze or if that LT buy signal was the real deal.

The VST chart I have shown above can be helpful in navigating around the primary trend lines, which are by nature volatility zones as can be seen by the reaction to the IT primary trend line in the overnight rally.

My guess is that professional bears are short from 1208 –1210 area and that the two red trendlines on the VST chart above show where their protective stop placement is located.  The pros aren’t likely going to challenge their own stops in a trend.  Therefore, if they are truly position-short and looking for lower prices after this squeeze (if that is what it is) is exhausted, then those trendlines should hold on a snapback rally.

If I were pulling the levers, the yellow rectangle is where I would go on this rally, and the back-kiss of the broken VST trendline would be my sell target—but we’ll have to see what sort of juice is in the tank here.

As always, the trend is your friend until it ain’t…

ST trend is down < 1174
IT trend is down < 1156
LT trend is up > 1079

There will likely be a huge amount of ‘news and noise’ designed to throw traders off the scent, but the support and resistance levels tell the true tale, as always.  Great thing about S&T is that it could care less about what anyone says or thinks and is completely unfazed by human emotion…since it is a coldly logical computer program.  In the space of just a few trading days, we have seen extreme fear visited upon both bulls and bears alike—but as bizarre as the recent moves has been, it all fits completely within a logical technical framework, which is what my previous post pointed out.

What can sometimes happen in these squeezes is a pullback followed by a second jam higher.  If that happens, then I will be watching the yellow rectangle area to see what happens at the back kiss of that old VST trendline.

The IT primary trend line is in play here–and can also serve as an intraday dividing line (bullish above/bearish below) for VST traders.

…my .02