$ES #ES-mini futures #trading setup #Expanding Flat
The relentless short covering rally seems having stopped today.
Before I show you a macro picture I would like to add a couple of notes about that rally and explain what was wrong with it. In my Premium Chat room I post numerous micro updates throughout a day. I posted the chart above at 10-12 AM EST and noted that the micro structure looked completed. Moreover, I explained to members that the rally lacked an impulsive five wave up structure. Instead, it was structured as a corrective -w-x-y- structure, a combination of four smaller a-b-c structures.
If we get a rally that has a corrective structure and makes a lower high we always consider it a short setup.
Today we had three more arguments to doubt that rally:
(i) VIX was green during that rally signaling that buyers kept accumulating put options because they felt pretty confident about an upcoming bearish reversal; and
(ii) RTY was red despite the morning rally in S&P and Nasdaq. Experienced traders call Russell “the true teller” for a reason. It normally provides us with the most reliable wave counts and trading setups.
(iii) ADD, an indicator showing a difference between numbers of advancing and declining stocks was negative. That was a sign that the rally had a very weak participation.
Now let’s zoom out to a 240 min chart:
his rally stopped at a meaningful 50% retracement of the February decline (4,056).
Bears got a clean a up, b down, c up corrective structure (look at the black colored a-b-c letters) that is shaped as an Expanding Flat structure. That rally managed to retrace only half of the preceding decline and made yet another lower high.
That is a decent short setup for bears to start an accelerated part of a decline in the heart of the wave -iii- down, its subwave -c- of wave -iii- down.
That leg down in subwave -c- of wave -iii- down should subdivide into five mocro waves and hence should start from a micro i down, ii up setup.
Because the FED’s Chairman will be in the air tomorrow morning we can get a sharp drop to 4,018 or even lower followed by a quick deep pullback in a micro wave ii up in one day.
A wave ii up is supposed to have an internal a-b-c structure and must make a lower high.
If we get a wave i down that can come as a spike down to 4,000 followed by an a-b-c bounce tomorrow that would be a sweet short setup for a drop targeting 3,840-3,800 in a micro wave iii of -c- of -iii- down.
If I zoom-out you will see a huge blue triangle that formed starting Sep 2022:
Note the failed attempt to breakout of that triangle in early Feb’22. Then note how ES broke under the lower trendline forming that triangle in early March 2023. And that rally just came back to re-test that triangle from below. It’s important for bears to keep ES under the upper trend line.