VLT Trendline

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At long last, we are here at ES VLT trend line resistance.  This trend line resistance serves as an extremely important psychological target for many traders as it pushes the macro bearish market restraint to the very limits for technical analysts.

Way back in December of 2011 I posted extensively about macro structure and the importance of understanding the calculus of bull versus bear bias in trading strategy.  That was an important point to make, and for newer readers I would encourage you to reread that post at the following link:

http://stopsandtargets.com/members/futures/blog/?p=3600

Back then, I pointed out the VLT structure and pointed out the key pivots.  The VLT structure has been decidedly bearish since the March 2000 peak, but we are now bumping up against the tend line drawn from that peak at 1709 to the lower high at 1532.75 (adjusted for current continuous contract values).  The breaking of that trend line is a warning shot that something is potentially changing in the macro fundamentals–and if it is ultimately broken and a sustained breakout occurs–the next logical target higher would be the last lower high at 1532.75.

Remember, the classical definition of a bear market is a series of lower highs and lower lows–and a bull market is a series of higher highs and higher lows.  We are not there yet, but this is a spot to tune in and watch carefully with a full understanding of what is at stake from the macro perspective.

This spot represents an ideal ambush spot–and so I look forward keenly to see how the pros play this.  We could see either a sharp pullback from here, or we could see a potentially massive breakout fed by big-time bears being forced to cough up positions based upon the technical change shown above.  As I have been saying, this market is extended and clearly is being supported in a squeeze–what i can’t be sure about is whether this is distribution or if it is a sponsored squeeze by the pros to break the back of the bears.

There is definitely a macro trade setting up here–but we’ll have to see which way it goes from the VLT trend line touch.  As I mentioned previously, the setup is in place for eventual creation of new index spotter signals –but one should be extremely careful to wait for the trigger and then confirmation, as we could see a number of false alarms on the initial signals, as well, due to the nature of this setup.

The ideal VLT trade here has been long from 596.50, with this area representing a realization of the trend line target with expectation of commensurate profit-taking.  However, what remains to be seen is how much fuel exists to effect a breakout squeeze above that line.

All eyes are on the VLT trendline…

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Nothing bearish occurs until at least the bottom rail of the VST trident channel (shown as a dark gray line of the chart above) is broken.  As I also mentioned previously, one probably does not want to be short above 1419.25

…my .02

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