ES just made new highs above 1468. ES should clear this price area quickly and head towards 1500. If it hangs within a five points around 1468 for much longer then ES may pullback on the short term.
The last time I checked in on ES I was looking for ES to pullback below 1400 and for a “superior” buy setup to form. ES did pullback below 1400 on December 28th to 1382.25 but it rallied very strongly out of this price area the very next day and closed near 1424. This was the superior buy setup. Now I was hoping for something that would be a lot easier to trade, that is one reason why I was calling it a “superior” buy setup- but in fact it was extremely hard to trade. I completely missed it, kudos to you if you caught it.
Looking back, I knew we had a good buy setup when ES closed at 1360 on November 16 and I should have bought this setup more heavily. And looking back I completely blew this because I felt we would get a better opportunity. This was a huge error on my part. I always miss buying the Thanksgiving dip and this year was no exception. It’s just something I’m not good at.
Anyway following the close at 1424, ES gapped up around 20 points and hasn’t looked back. ES just made new highs above 1468 this past week and I think we all agree that the market looks incredibly strong so I’m not going to list all the strengths and instead will focus on the very little weak points that may hint at an impending pullback:
1. ES has only exceeded the old 1468 high by 3 points. This puts ES in trap reversal territory. Now that ES has broken 1468, ES should quickly clear this price area and head towards 1500. If ES stays within five points of 1468 this leaves ES prone to a trap reversal. ES could pullback 10-15 points from here but I don’t it will drop much further than that.
2. The Nasdaq is still severely lagging the S&P500. But at this point I have accepted that maybe it doesn’t matter if the Nasdaq is strong or not. The Nasdaq being much weaker indicates to me that the tech sector is not leading the latest bull market rally. Healthcare (XLV) and Consumer Discretionary (XLY) sectors are doing extremely well right now and perhaps we should be looking for weakness in these areas instead of the Nasdaq. Still, if there were no S&P500 and the major index were the Nasdaq I would be looking to get short right now.
3. The daily candlestick on Friday may also be suggestive of a small 10-15 point pullback to begin next week but ES shouldn’t drop really get close to 1440 in my opinion.
So to summarize we don’t have a sell setup or any good reason to be short right now. I know some of you might be aiming for ES to drop back to 1424 to fill the gap there, but for all purposes the gap at 1424 looks like a textbook breakaway gap to me. These kind of gaps can take half a year or longer to fill. There is a great book on chart patterns called “Encyclopedia of Chart Patterns” by Thomas Bulkowski. In this book Bulkowski goes over hundreds of chart patterns and provides a ton of statistics on their success rate. Off the top of my head, I believe Bulkowski has found that a breakaway or continuation gap takes on average 100-150 days to close. So I know it looks like a very juicy profit to aim for the 1424 gap fill but it may be a half year long endeavor to realize the profit.
So what have I been trading the past month? Well while ES hasn’t provided many good trading opportunities over the past month- I have been active in almost every other market has: Ags, Currencies, Energies, Bonds, Metals, Softs.
There was a huge breakout in corn on Friday and this may end the downtrend so the picture in the Ags market is kind of unclear right now. But up until Friday everything (corn, wheat, oats, soybeans) was a good candidate to short.
I consider the uptrend in Live Cattle futures to be the strongest uptrend in any market right now. This market pulled back last week and I’m looking for a buy.
Nat Gas has been pulling back the past month but we have a good buy setup going into next week and I’m trying to build a long position here.
Gas (RB) and Heating Oil are a lot weaker than Crude and I am short these markets. I am looking to get short Crude next week. I’ll talk about this more in another post.
The Yen has broken all support levels and resolved to the downside. I have been adding short to this market at any opportunity.
I just got long on the 30 year (ZB) and 10 year bonds (ZN) on Friday. I am looking for continuation to the upside in these markets next week.
I think most readers of this blog know where I stand on Gold. We have seen some volatility in Gold but I am holding short this market with a stop at 1695. The interesting thing is that Silver has been holding a key uptrend line for the past month so we could get yet another big rally this year but I’ll believe it when I see it. I’m holding short till I get stopped out.
I got long Sugar, Corn, and Coffee this past week. All of these markets have been in a downtrend for ages and so I’m not expecting a whole lot out of them. I feel the best about Sugar.