The S&P is at the cross-roads. If I see acceptance below 741 (basis cash) in the form of a bear bar (close no higher than 1/3 of the range from low, open no lower than 1/3 range from high), that will be enough to suggest that we have a downside breakout. The first target will the Maximum Extension at 641 (basis cash). Acceptance below that provides a target to 370 to 294. That’s a wide range and I expect to narrow it down if and when we approach it.
But the short side is not the only option. There are two scenarios for a bounce:
- We may see a probe tonight below 739 to 737 (basis March) and then a bounce. We’d need to see acceptance above 781 to confirm the market may seek to accept, recover above the 12-Month (yearly trend) Primary Buy Zone 881 (basis cash). Or
- We may see acceptance below 741 (basis cash, 739 basis March) and hold above 641 (basis cash). This would mirror the 1966 to 1982 pattern.
How to trade it? That is a difficult question since my trading will be context dependent. Here are some ideas:
- We had a close at 752 (basis March). The market is currently trading at 742.50. If the market has an open-gap of at least 7 points, we apply the open-gap rule. Watch to see what happens after the first 60 minutes. That will provide a great clue for the evening’s trading.
- If the market moves below 739, watch the volume at the lows to 737. We are looking for an auction bottom (light volume) after a breach of 739 and up to 737; seeing one will suggest a bounce.
- Acceptance volume below 737 will suggest a downside breakout.
- Figure 1 shows the current 12-M pattern.
- Figure 2 shows the 12-M 1966 to 1982
- Figure 3 shows the current E-mini (March) pattern
Figure 1 12-M Current S&P
Figure 2 12-M 1966 to 1982 S&P
Figure 3 Current 18-day ES
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