LT Support Test


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(click image to enlarge chart)

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I am still using ES 1104 as the VST bull/bear line (intraday price action is bearish below/bullish above), but there could be too many chasing a counter-trend bounce at the gap fill–and still too few bears on the other side of the trade at this point.  We’ll see soon if they are trying to flush the gap buyers before a reversal–or if they are heading lower to challenge the LT bull market support.

I occasionally scan several public message boards to grab an anecdotal sampling of retail trader sentiment and have noticed a distinct change in the types of messages being posted since the 4/26 high.  The countertrend bears who continually shorted on the wrong side of the primary trend during the bull market…have been conspicuously absent.  It is somewhat ironic that the wrong-way alphas who were bashing me for being bullish in a bull market (go figure) have apparently missed this entire sell-off.  The message boards that were formerly teeming with bears from the March lows are largely ghost towns now—at the very time when they should be full of celebration of huge bearish gains in a target-rich market.

Those of you who have been following my commentary for the past few years, may remember me posting that when the turn finally came—most of the truly obnoxious counter-trend bears would miss it–and the ones who didn’t would cover far too soon and then spend their time trying to pick bottoms in a falling market and miss out on the big bear-side gains…which is the exact same mistake as trying to pick tops in a bullish market.

Stops and Targets caught the major turn on the very day it happened by detecting a huge number of top spotter signals, which I posted about on my post on April 26th:

http://stopsandtargets.com/members/futures/blog/?m=20100426

and then follow-up posts on the confirmation the next day at:

http://stopsandtargets.com/members/futures/blog/?m=20100427

Stops and Targets also caught the March 2009 low on the exact date it happened by indicating a huge number of bottom spotters—and likely will do so again when this market is done correcting.  That could be weeks or months from now, however, if this bear continues to develop and gets past the long-term primary trend support to enter into official macro bear market territory.

The red arrows on the chart above point out all the places in my commentary where short entry conditions were set up since the top spotter signal–and the green arrows show places where partials were ideally covered on countertrend bounces.

A bear market bounce is almost certainly coming, and they can be spectacular when they erupt—but the best way to play it (in my opinion) is to let the existing short positions get stopped out in layers on trailing stops when the jam comes–and then sell key resistance and cover partials at key support until the bear runs its course.  The exact same strategy that worked in the bull market is being used in the bear, only in reverse.  It is important to maintain one’s core position in a trending market and to not be sucked into countertrend trading against a powerful trend.  That is a powerful lesson—and is the entire premise upon which S&T is based.

This is presently an IT bear market—but not yet a LT bear market (but close).  The LT timeframe is being tested right here, and we’ll have to see if that support will hold—or if a transition to a LT bear market is coming.

For now, the market is in decision mode as to whether the LT trend will reassert after a deep pullback, or if a new and potentially very nasty LT bear market is on the cusp.

The S&T long-term primary trend line is close here at 1083 and then there is a line of confirmed support at 1074 just below.  Under that is the last valid support trendline just under the 1060 area—under which, a LT bear is confirmed.

To the upside, the VST line at 1104 should work as an intraday bull/bear line, then the light gray descending trendline above is where the VST bear stops are likely located–and then the red descending trendlines presently at the S&T IT and ST primary trend lines.

This is an important area here…

ST trend is down < 1155
IT trend is down < 1153
LT trend is up > 1083

…my .02