$ES: Topped in the Red Box as Expected. What is the Macro Target for This Drop?

  • CastAwayTrader
  • July 28, 2023
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#ES $ES #trading setup #trading futures #Elliott Wave #day trading #swing trading

Yesterday I warned you about upcoming top and reversal:

“I count that rally as the final squiggle of a subwave -c- of wave -v- up.”

The path I shared on Wednesday clearly explained that you had to expect a brutal bearish reversal:

ES 15 min chart shared on July 26, 2023

This how that chart looks like now:

ES-mini 15 min chart

Yesterday I explained to subscribers of my Premium Trading chatroom that 4,560 was a very important support:

“bears can undershot 4,560 support but that is a very strong support and even if it gets undershot price will most likely come back up over that level.”

As we expected, 4,560 became a strong support for the market. It got tested twice yesterday and then ES popped overnight. Why that level is that important? How I could pinpoint that support?

let me explain you a very reliable rule.

The rule is: upon completion of a five wave up structure price quickly drops down to the low of the preceding pullback, which is the low made by a wave iv down of one degree lower.

Note that the Thursday morning spike up completed a micro five wave up structure off the early July 2023 low:

ES-mini 15 min chart

Note that the Thursday drop tested the low of the previous pullback in a wave -iv- down.

The low made by a micro wave -iv- down always becomes a magnet and simultaneously a strong support.

Now this is where wave analysis meets traditional technical analysis. Almost every bearish reversal is shaped as Head and Shoulders pattern:

ES-mini 15 min chart

The peak of a wave -iii- up is the Left Shoulder.

The peak of the wave -v- up is the Head.

The peak of the corrective bounce in a subwave -b- up becomes the Right Shoulder.

When wave analysis and traditional technical analysis come to the same conclusion though call some pattern with different names that becomes a really good setup. Because there are thousands of traders who practice wave analysis. But there are millions of traders who never heard about waves but are very well aware of Head and Shoulders pattern. The technical analysis is all about sell fulfilling prophecy. Patterns work not because they have magic power but because millions of traders are trained to recognize them and act accordingly.

Now let’s zoom out. We can apply the same rule we just learned to forecast a target for the first large a-b-c pullback but this time on a large scale. Let’s look at a 240 min chart:

ES-mini 240 min chart

Not that the Thursday morning spike completed not only a micro five wave up structure off the early July low, but also a much bigger five wave up structure that started in early May 2023 (see on the chart above).

Again, the rule is: upon completion of a five wave up structure price quickly drops down to the low of the preceding pullback, which is the low made by a wave iv down of one degree lower.

Based on that structure we can see that the macro target / strong support for a large a-b-c down structure, a pullback to that five wave up rally that started in early May 2023 is located at 4,400.

But we should not expect a direct drop down to that target. Note that wave iii up topped at 4,460 in mid June. 4,475 is a 30% retracement of that five wave up structure. That is the first important support (target 2 on the 240 min chart above).

In conclusion: if we get a bounce up to 4,594 – 4,606 that would be an attractive short setup to ride another leg down that can stretch down to 4,500 – 4,460. Later when we get first squiggles of a new move down we will be able to come up with much more narrow green box for potential bottoming zone.

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