ES: Popped to the Critical Resistance on Friday

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$ES #ES-mini #trading setup #ES-mini futures

ES closed a shortened trading session last week at the critical resistance 4,146. As long as bears hold ES under 4,146 that bearish setup will remain a feasible scenario:

ES-mini, 13,500 tick bar chart

However, bulls still have potential for another push higher under the bullish scenario we have been following as well:

ES-mini 120 min chart

Now let’s discuss three more alternative analytical approach that can help us to correctly define direction of the next big move.

(1) The Month Opening Range Strategy.

Last week S&P completed a Monthly Opening Range for April.

The Monthly support is 4,099.

The Monthly resistance is 4,171.75.

Now direction of a break out of that range would define direction of the next big move during the following two weeks.

(2) Trend direction.

You can see clear similarity between the daily chart post the Feb top and the price action seen last week:

S&P 500, daily chart

Remember the rule:

When price makes three consecutive lower lows on daily or weekly we consider it a confirmation of change in trend to the bearish one.

Note how S&P made three lower lows immediately after a top made on 2 Feb 2023.

Note that as soon as price dropped to the third lower low on 7 Feb 2023 morning a strong pullback started. And now look at three consecutive lower lows made right after the last highest daily close made on 3 April 2023. As soon as S&P made the third lower low in the morning on April 6 a strong pullback started. As you can see, in February 2023 that strong pullback was a one day wonder and was followed by two more days of decline that made another lower low. If S&P follows that pattern in April than we can expect this week to start from another leg down after a one day strong pullback.

(3) Analysis of an open interest

It will be really difficult to push ES/SPX to a new higher high because we have a large imbalance in favor of calls. If we calculate market value of all SPX calls and compare it to the market value of all the SPX puts we will get a positive difference of $60 bln.

For the reference, two weeks ago the difference was negative $8 bln. (meaning that the majority expected continuation of the move down). That essentially means that over the last two weeks the crowd loaded up on speculative calls and has been waiting for the market to keep going up.

The paradox is that the market almost never does what the majority expects and on what the majority bet its money.

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