Equity markets are still showing strength, but don’t become complacent, warns Ricky Wen.

The second week of July continued to follow our expectations.  Early in the week we got the expected backtest pullback into the 2950-2960 trending support zone, and then price formed a 2963.50 low to confirm the low of the week was in on Tuesday July 9.

The rest of the week was spent doing the higher lows and higher highs continuation into the 3015/3025 targets as we got another "dead high" (high of week) Friday closing print by the end of the week.

The main takeaway from the second week of July is that it had something for everyone as both directions played out accordingly on the micro charts, and the end result remains the same with the ongoing bull train. Overall, not much has changed in the bigger picture as traders continue to milk the bull train and the bears are still stuck until actual supports break due to the ongoing trend and odds.

What’s next?

The E-mini S&P 500 (ES) closed at 3014.25 on Friday, at the dead highs as expected as this year’s Friday stats have been working well due to the explosive trend. Heading into this week, it’s going to be trickier because the 3015/3025 short-term immediate trends are considered fulfilled. It’s also monthly Operational expenditure (OPEX) week so we need to be nimbler given the usual shenanigans ahead with a "shakefest."

Traders need to be prepared and not get complacent like in October 2018 when a massive weekly and monthly bear engulfing pattern appeared as soon as the S&P 500 broke below 2865.  We should have an ongoing major support level as a warning that something is wrong and a quick mean reversion could occur. For now, that ongoing level is 2955, derived from past two weeks due to the structure of the recent upside follow through in July versus the massive June monthly bar. 

The market is a bit overextended as 3015/3025 targets hit, so stay cautious early this week. Wait for your level to hop on the train ride again.

The next key area is continuation at 3048-3050, if that is taken out, the train wants to accelerate higher. Support is at 3005 and 2992; any dip is a buy with these defined risk levels. Major support is at 2955—don’t mess with it, just get out. This is the first warning sign of a longer-term bear engulfing pattern that we must respect.

Ricky Wen is an analyst at ElliottWaveTrader.net, where he hosts the ES Trade Alerts premium subscription service.