The risk signals I’ve been seeing made me bearish, and that looks to have been a reasonable stance to have adopted here. It remains possible to count $ES as a series of ones and twos to the downside, but it’s looking clutch at this point. One can only put in so many ones and twos but at some point, you’ve got to see the threes or otherwise it’s just wishful thinking. Without taking out the September 3rd high with a murderous expansion of range, I will be doubtful of the nested bear count. As the waves unfold, what we should be seeing is acceleration, but we’re getting contraction here instead (hence the bullish wedge).
I’m listening loud and clear to that. I was right to be bearish here, but I also don’t want to overstay my welcome. I think that “bad dream” count is promising for several reasons (in addition to the ones I discussed in that article). The volume spike today is a symptom of a capitulatory low, but, realistically speaking, we’re not all that low in price. That, my friends, is the definition of strong support. Let me show you what I found by checking the volume on an intraday chart.
Imagine these two circled areas as two distinct candles and you’ll immediately see the problem. When dealing with high volume, we want to see volume confirmed by price. We got that overnight (high volume, moving down lots), but look at where most of the volume traded. All in what would look like a stubby candle compared to the one before it. Someone soaked up every last penny of that selling. That may signal a strong reversal coming. The majority of contracts traded without a commensurate movement in price.
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