Being blindly bearish is never a good idea, so let’s at least take a look at the bullish case for $ES. It’s the 1-2 to the upside count that I referred to dismissively last night. Truth is, I don’t really have any idea what this market’s been up to going up as much as it has this last year and a half, and for all I know it may go even higher just to piss people like me off even more than it already has.
So, we detected a topping process, and that part’s good because we were right about that. What have we accomplished? So far, not too much. We’re 3% off the highs and above the September high. If that holds, we need to accept the fact—as disgusting as it is—that this has been a retest of those levels. We do have a way to count the structure as a correction if we need to (the green A-B-C), and the actual measured move of the head and shoulders pattern hit with precision today. We also have parallel rails here, which, yes, is a bull flag. Ermagerd.
If we’re in very bearish market conditions, we do actually need to move down in price, and we’ve done a bit of that but not a whole lot yet.
Here is my thought: if we recapture the H&S neckline (green) and people buy a lot puts up there and on the way there, it means everyone is trying to fade the counter rally and they will be wrong about it. So, that’s what I’m going to watch.
I’ve had an intermediate (orange) 5 up at the top, but nothing stops this from being 1 of that 5. A lot of the risk assets (oil, high yield debt, etc.) are badly oversold here and I would expect them to bounce. And if they can get some momentum behind them when they do inevitably bounce, it is possible that the risk signals I observed pointed to this much needed correction rather than a major top.
All of this is off the table if we start moving down aggressively, but until then we should know that this exists.
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