Ricky Wen breaks down stocks indexes as we head into the historically difficult month of September.
Stocks wrapped up around their highs in August as the E-mini S&P 500 (ES) price action gained more than 7% vs. July. It was a statistical outlier as it was one of the biggest gains for August in decades. Nonetheless, the August monthly candle demonstrated a powerful immediate continuation off of the past few months’ setup and trend continuation pattern.
A few important things on our radar inform us that September likely won’t be as easy or one directional.
The main takeaway is that the August month end was able to wrap up around the monthly range’s high indicating that the bull train is still in full control of immediate momentum. This means that heading into September there’s really only two on-trend and one countertrend scenario. On-trend would mean the standard “hold half and go” monthly setup or the immediate continuation higher and higher without looking back. The countertrend would be a reversal pattern taking place that threatens the August month’s range of 3524-3254.
What’s next?
The S&P E-mini closed in August at 3494, we must be prepared for likely consolidation/digestion as we head into September given what we see on our radar and the potential of being whipped.
A summary of our game plan:
- Treat today as a tight range 3510s-3480s for the time being given yesterday’s pattern.
- Need to keep monitoring the situation with the key support of 3478 to see if price is able to get out of Monday’s tight range of 3510s-3480s.
- In addition, the overall range for this week remains 3533-3424 per our calculations. This means that there’s still more potential downside risk than upside for this week’s consolidation/digestion/backtest purposes until proven wrong. This only remains valid when price action is below 3533, otherwise it would open up further levels that we’ve calculated.
- August gained about 7% vs July close. This means that heading into September traders must be prepared for digestion/consolidation/backtest vs. larger supports in order for price action reset and attempt to ramp again.
- Trending support is at 3478 representing Friday’s low before the breakout into 3500 and towards 3533 key levels.
- Bigger supports are Aug 26 low area of 3432 which matches with one of our key homework support levels. In addition, the trending daily 20EMA at 3400s as of writing. Price action is about 100~ points away or 3% from the main trending support on daily chart
- In order to prepare for any violent price action shifts, mean reversions or sentiment, our ongoing shit hits the fan level (SHTF) is located at ES 3350 as we’ve aligned multiple timeframes with this calculation. A break below this level would be a significant trend change on all the important timeframes such as daily, weekly, monthly, quarterly. Then, if price maintaining below would be a huge hint.
Ricky Wen is an analyst at ElliottWaveTrader.net, where he hosts the ES Trade Alerts premium subscription service.
