Summer Rally or Summer Slump?

06/28/2010 10:53 am EST


That is the question! I can make a case for either scenario, but the most recent data that ES has been giving us is bearish. Not because the market is going down, but because the structure of the market is bearish. The charts below make the case for neither scenario, but rather, present both as possibilities and indicate important levels to my analysis. As the market unfolds, more information will be welcome and useful in projecting the intermediate-term path of ES. The first chart is the weekly big picture. Its primary use is to give us an overarching view of the market so we don’t get lost among the trees. The second chart is more relevant to our trading on Monday. Sometimes I learn more when my projection is not followed by the market. It tells me to reconsider my opinions.

The weekly chart below shows general paths that are possible for ES. Because I am short-term bullish for Monday’s trading, I favor the short red arrow up for Monday. The next chart shows the possibilities for the short term.

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The next chart is more relevant to our trading on Monday. Be sure to review recent posts since many are still relevant. I still have, in the back of my head, the 1150 level as a destination that would make a nice right shoulder on the daily chart. That would be at approximately the 62% retracement level, and ES has already hit the 50% retracement level and reversed. Right now, it looks on the daily chart like ES wants to make a right shoulder, but had this shoulder beaten with a two by four. As I mention on the chart, the 1150 level would make for some interesting possibilities—both bearish and bullish. The most notable bearish indicator is the structure of the rally from the correction low of 1038.50, which looks corrective (overlapping waves). This could be an ABC or an ABCDE. But that doesn’t rule out the possibility that it is simply ES forming a base from which to rally.

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By Dr. John Trapp, aka “MortES”
Find out more about “MortiES” market thoughts here.

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