In my weekend update I correctly predicted a bullish bounce:
Under that bearish wave count I expected to get an a-b-c up corrective structure that was supposed to stop at 3,688. However, instead of an a-b-c up move we got a five wave up move.
If we consider the low made by a gap down move on Thursday, Oct 13th low as the low of subwave (a) of wave (v) down we would be able to count that move up as a corrective -a-b-c- up structure in subwave (b) up:
Under that scenario we still need ES to stretch higher to 3,745. However, in that case, a short subwave c up would leave an unfinished business for bulls, a ticking bomb under that bearish count.
Below I want to show you an alternative bullish scenario:
Under the Bullish scenario, the Monday rally should be counted as a corrective subwave -b- up to be followed by a strong drop in subwave -c- down that would complete a corrective wave -ii- down.
Both scenarios allow bulls to push ES higher overnight over the previous high made by ES at 3,733.75 last Friday morning.
If bulls push ES slightly over that high but then fail to defend it we will get a reliable winning short “failed breakout setup”.
Both scenarios argue that this Monday rally would be followed by a move down. But they are different when it comes to target of that move down.
(1) under the Bullish scenario we will get a drop to a higher low = 3,636 – 3,605 and then a very strong rally in a micro wave iii up targeting 3,930;
(ii) under the Bearish scenario, we would get a drop down to 3,585-3,570 in a micro wave -i- down, followed by a corrective bounce in a micro wave -ii- up:
Please pay attention to two widely watched Moving Averages:
(1) Daily Exponential Moving Average with 21 period which is currently located at 3,724.50. It stopped the rally tonight, and
(2) Weekly Exponential Moving Average with 8 period which is currently located at 3,762.50.
If bulls manage to close a day over 3,724.50 that would be a very strong bullish signal.