The S&P 500 is closing the month near important technical levels that will suggest where we go from here, notes Ricky Wen.

Tuesday’s session played out as a bull bar backtest towards the key 3270/3290 levels on the E-mini S&P 500 (ES). The day acted as a double bottom/higher lows relative to Monday’s low of 3233. The market is offering few to no surprises thus far this week and now the fun part begins as price action must either turn here or choose another route such as V-shape up continuation pattern. 

If you recall, the market on Jan. 8 held the 20-day exponential moving average backtest region across all the equity indices and produced an imminent V-shaped recovery in the next couple sessions followed by the continuation setup into this week’s likely higher lows and higher highs grind into new targets. Obviously, it’s been the same old structure since the October 2019 breakout acceleration as the bull train maintains course and nothing significant has changed since then with the 20-day exponential moving momentum. The bull train structure will be trying its hardest to maintain the same structure into the January monthly closing print.

What’s next?

Tuesday closed at 3283 on the ES as a bull bar backtesting in an approximate 50% retracement of the 3337.5-3233 overall range. This level coincidentally is also the eight/20-day exponential moving, so the next setup development will be pivotal as we head into Jan monthly closing and February’s trend continuation/inside month structure. 
Our ES game plan:

  • Price action testing the upper end limits; the four-hour white line projection remains primary and red line is alternative.
  • Traders could utilize 3270, 3290 key levels to short into if we get a decent setup later today that traps some short-term bulls. A close above 3290 would be bullish, indicating lows are in already instead of a likely backtest.
  • Key support levels remain the same this week located at 3235-3230 for first pivotal support, then 3210-3200 next key area, 3181 final area for this overall week. Basically, shit hits the fan if below 3181.
  • In this faster-paced, higher-volatility environment, stops and sizing will need to be adjusted accordingly because small width stops will get taken out in an instant by spikes and injections.
  • Lots of mega caps reporting earnings this week so the game plan is to stabilize and gun for the monthly closing print back into middle/top of the range of this January monthly candle.
  • The most important thing to watch for these next few days would be the closing print; being above or below 20-day exponential moving average would tell us a lot of de-risking or just rotating/ needed mean reversion to reset internals/shake out some weak hands.

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