One week ago we have outlined two possible scenarios, after the positive WEEKLY Close:
1) start of a new WEEKLY leg up
2) small bounce before another WEEKLY leg down
Looking at last week’s Close, it seems scenario 1) came true. The ESM15 WEEKLY chart below shows it quite clearly: a big green candle rocketing up >50 points from the latest lows/support area in the ~2040s.
Yesterday the ESM15 market closed down again. The ESM15 DAILY chart below shows the support and resistance levels discussed in the LONG and SHORT sections below.
As you can see there is more room to go up than down, before reaching DAILY levels that will offer some meaningful opposition to a continued advance. This means that in theory the path is clear to go up, and combined with the fact that today is (at the moment of writing) the third day down in a row, a bounce is becoming more and more possible as we will see in the TO GO LONG section below.
TO GO LONG
My post of April 5, 2014 refers.
The following Daily chart of the ES (S&P 500 E-mini Futures Index) shows what happened from that date up to the present. The ensuing swings overshot my projected targets a bit, and it took a bit longer for the “FROTH” level around 2100 to be reached, but price action generally followed the path that I forecast a year ago…price has been consolidating, basically, below that level since December 2014. Additionally, volatility did become the “name of the game” over those weeks and months, as I had anticipated.
Below is a chart that shows a nice correlation between the price action of VIX and SPY and their 20, 2 Bollinger Band. What the chart shows is that typically when the VIX hits the upper level of its Bollinger band along with SPY hitting the bottom of its BB, it marks a low in the market and a bouncing point. It is same on the opposite side of the Bollinger Band, so when VIX touches the bottom of its BB and SPY touches the top, this marks a top in the market.
VIX touched the touch of its BB yesterday but SPY did not. This pattern usually jump starts when both hit the BB and the VIX will typically hover around its BB for 2 – 4 candles. For SPY to hit its BB it would need to get to 203.38, which is right around the March lows. This correlation is pretty strong and it shows there is some potential for further downside but it is limited. Plus our signal is flashing oversold I know not music to Slopers ears so be careful!
Hello to all Slopers, before we begin the analysis of the E-mini S&P500 today we want to make a brief re-cap of what was the situation in our last post 10 days ago. Basically we suggested to NOT GO SHORT, because the market was oversold, and we indicated the ~2040 price area as the most likely bottom, you can read it all in our previous post indicated above. The market massively bounced from there, hopefully you have followed our advice and avoided going SHORT at the bottom. Today we will look at the market and try to forecast with our models what is in store for the next 1-2 weeks.
As I mentioned in my post on February 24th, 150.00 is the Bull/Bear Line-in-Sand level for the SPX:VIX ratio, as shown on the updated Daily ratio chart below.
At the moment, price is back above this level, after bouncing in between 160.00ish and 120.00ish since that last post.
All right, today just a quick analysis, hopefully it can be helpful to Slopers that are thinking to go SHORT right now…
First of all, please check our previous post from February 23 where we insisted it was time for a SHORT trade. That was two weeks ago.
Now, the market is tanking and it has made a bit of road down already, so let’s have a look to what our model say, where is the limit for this “correction” ? Just to avoid going SHORT at the bottom…