TO GO LONG
Chart Analysis
The DAILY chart of the ESH15 below helps us visualize the fact that the potential upside for the DAILY impulse is limited if compared to the potential downside. Why? Because our calculation of the impulse extension TO GO SHORT begins from the last candle closing down, i.e. 1994.5 on January 6, 2015, and so a good part of the possible total extension of this upward impulse has been already eaten away by the current wild bounce. On the other hand, the calculation of the TO GO LONG levels starts from the latest up Close, and so there is plenty of room to go down from these highs. For the investor, this means that it would be a bad idea to buy right now, better wait for the inevitable pullback and then, at that point, we can buy at better prices.
CCOC – Consecutive Closes Odds Calculator (TIME EXTENSION ANALYSIS)
The TIME EXTENSION ANALYSIS model below now shows “0” on the DAILY time period because the market yesterday closed up, so there are no DAILY closes down at the moment (as you remember this model was showing “5” DAILY closes down until two days ago, and pointing to a very OVERSOLD condition).
The WEEKLY time period shows “1” (as in “1 week down”, since last week closed down) and in 57.21% of the cases in history the market closes down one week and then the next week is closing up. This is almost a coin flip, but a bit tilted in favor of having this week closing up after 1 week closing down. We’ve made this prediction on Monday, and we are repeating it each day of this week but the ideal moment to use this setup to go LONG was last Friday at Close (just before the Close) when the setup was very timely. As we have now reached the end of the week, this setup will be changing (for example if this week closes up, the gauge will show “0”, or “zero weeks down”) and so it will lose its validity, it won’t offer anymore to a setup “TO GO LONG”.
The MONTHLY time period is showing “1” month down at the end of December, and we can see that in 62.50% of the cases, the market closed 1 month down followed by the next month closing up, so from a purely probabilistic point of view the odds are slightly tilted in favor of this month of January closing up.
RL – Retracement Levels Odds Comparator (PRICE EXTENSION ANALYSIS)
Looking at the PRICE EXTENSION ANALYSIS model below, we have highlighted the first DAILY support level that offers enough chances to see a new reversal upward: 2001, in 55.17% of the cases the market does not go lower than this level during this type of retracement pattern.
The WEEKLY time period offers decent support at the 2000.75 level, in 47.76% of the cases the market does not go lower than this level during this type of retracement pattern. This level matches quite well the 2001 DAILY level and confirms support in the ~2000 price area.
The MONTHLY time period offers acceptable support at the 2003.25 level: in 42.50% of the cases the market does not go lower than this during this type of retracement pattern. This level matches quite well the DAILY and WEEKLY levels suggested above, confirming good support in the ~2000 price area.
If you look at the big gauge on the right hand side of the table below, it displays the average odds for the 3 time periods, 48.48%, so this is almost a coin flip overall but good enough to try, in our view. The market may bounce again from the DAILY+WEEKLY+MONTHLY price area indicated. The reversals, if it happens, will last a minimum of one day, one week and one month, respectively, so we can predict longer-term reversals when good support levels on WEEKLY or MONTHLY time periods are hit. This means: a new, lasting uptrend is possible from these levels.
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TO GO SHORT
CCOC – Consecutive Closes Odds Calculator (TIME EXTENSION ANALYSIS)
The TIME EXTENSION ANALYSIS model below shows “2” on the DAILY time period (as in “two DAILY closes up”) and “0” on all the other time periods. The SHORT CCOC model is not offering much insight to go SHORT at the moment, except for the DAILY saying that we have a favorable chance to see a negative Close today (in 67.06% of the cases the market does not close more than 2 days up in a row).
Looking at the PRICE EXTENSION ANALYSIS model below, we have highlighted the 2075-2080 price area because 2075.75 is where we have a very strong DAILY resistance and we have compared that level with similar WEEKLY and MONTHLY levels. If the market reaches 2075.75 on the current bounce, we will know that in 100% of the cases this retracement pattern does not go higher than this level. This means that during all the retracements recorded in history for this retracement pattern, we have never seen a retracement going higher than the level that today corresponds to 2075.75. This is a strong SHORT DAILY setup. A moderate breaching of this level does not invalidate our prediction, however, should the market suddenly shoot up to 2100, we will be in the “outlier” zone, where nothing can be predicted and we will need to turn to WEEKLY and MONTHLY models to assess the next resistance.
The WEEKLY time period offers very weak resistance at the 2080.25 level, only in 20.75% of the cases the market does not go higher than this (or in other words: in 80% of the cases it goes higher). If the market has started a new uptrend, it will take a while before WEEKLY SHORT levels with good odds of reversal are reached. 2101 would be our first candidate.
The MONTHLY time period offers no resistance, or zero resistance at the 2078 level, so we cannot say anything about MONTHLY resistance until we reach at least 2160.50, the first valid MONTHLY resistance level to go SHORT.
Summing up: very strong DAILY resistance at 2075.75 should mark the upward limit for this strong impulse. The market is already OVERBOUGHT DAILY at the current levels. This is an invitation to go SHORT (or at least to wait for a pullback before going LONG again): if the market is now in a downtrend, this SHORT trade could produce good gains, riding the move down to oversold LONG WEEKLY and MONTHLY levels (south of ~2000).
Alternatively, if this correction was just another buy-the-dip occasion, then from here we could have a continuation of the rally (after the upcoming DAILY pullback). If you have loaded up LONG positions when the market was oversold two days ago, you should be benefiting greatly if the uptrend continues, you can add positions on the pullback at the levels indicated in the TO GO LONG section.
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