This past week, we were expecting the 2520 ES region to hold as resistance – but it did not. Instead of getting follow through to the downside, the 2520 ES region was tested multiple times until it finally broke on Friday. 2560 ES resistance would be the next target.
2520 ES resistance failed. While it held for most of the week, on Thursday night and and pretty much all of Friday including the 10:15 Fed interviews between Bernanke, Janet Yellen, and current Fed Chair Jerome Powell when Powell said that he will be patient in raising rates.
This gave the market the signal to break over that 2520 ES resistance from the open at around 2480ES. Market closed around 2530 ES.
With the key 2520 ES resistance clearly broken at this point, I redrew the Fib levels to find the 50% retrace area from the high of 2809.5 ES — that 50% retrace is around 2564.50 — still a 35 pt ES increase from current levels and that could still support a fourth wave formation.
Of course, I was expecting the 2520 ES level to hold and to retest the lows — though that did not happen. What are some signs that that wasn’t going to happen?
See further below for zooming in details.
Really surprised the market is way back up here. The Fed announcement on December 19 that resulted in the selloff down to 2320 ES on December 24 began at 2590ES – where it spiked to during that Dec 19 Fed announcement. It closed that day at around 2505 ES. We are now higher (2530 ES) than the closing price of that Fed Day (2505 ES) — scratches head.
It’s as if the entire Fed scare was nearly 100% reversed. At this point, this post Christmas Rally appears a bit excessive, but important to be patient. From 2320 ES all the way to 2520 ES is already 200 ES points! Yet, apparently that’s not enough and we may be going to 2560 ES — that’s 240 ES points from the low. I don’t expect it to last long, but then again it’s so far lasted longer than I expected.
Well, we had that diagonal pattern form — and typically, we want to see follow through immediately – which we sort of saw last Friday. But on New Year’s Eve, the market gapped up into the 2505 ES region on some positive comments from Trump regarding talks with China. Although the night of New Year’s Eve showed a nice drop into the next day at 2455 ES — it did not follow through after that – as it completely reversed it all and retested 2520 ES once more.
This was the big clue that immediate downside would not happen. Because then if 2454 broke once more, that strength was a hint that there could be support shortly below that area. At this point, it is likely that the 2550 ES region will be exceeded in the near term.
However, I don’t believe the lows are in.
So while the diagonal was in place for a 4th wave diagonal – since there was no immediate drop follow through below 2400 ES towards 2350 ES – instead the market kept retesting 2520 ES — the momentum is to the upside until we reach that 2564 ES region – which is the 50% retrace of the larger drop down from 2810 ES.
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