$ES #ES #MACRO #WEEKEND #Weekend
The previous week solidly invalidated the alternative bullish scenario that allowed bulls to make a new higher high in 2023. That bullish scenario is dead. Now we can entirely focus on two bearish alternative paths:
The minimum macro target for this decline is 3,844, a 66.7% retracement of the 2022 – 2023 rally.
Below we will discuss two micro path leading to 3,840 – 3,823.
(1) Very Bearish Macro scenario:
The Very Bearish scenario assumes this decline off the July high is an unfolding five wave down impulsive structure:
Under that scenario this specific leg down that started off the mid Oct’23 high is a the strongest part of the decline in a subwave c of wave iii down targeting 3,947.
Last week S&P dropped under the risk level 76.4% ext of the previous decline. That opened the door for extension and acceleration of the decline to the next 100% extension fib at 4,070.50.
If we apply Gann’s extensions tool we will get a similar target at 4,080:
If we add projections off 4,393.57, the mid Oct’23 high we will see three support levels:
(2) Now lets look at slightly different Bearish Macro path leading down to Oct’22 lows:
That bearish count is based on assumption that the decline off the July 2023 top has been following a double three scenario rather than a textbook five wave down structure.
There are two main distinctive features of the Double Three corrective structure:
(i) it is composed of two a-b-c structures interconnected by a technical wave x that is a failed attempt of bulls to start a new rally, and
(ii) every new leg down normally gets stronger than the preceding one.
This is how the Double Three structure normally unfolds:
Note that final panic driven drop in a subwave c of wave -y- of (y).
It creates a bears’ trap because bears count that drop as a wave (iii) down and they treat a new leg up as a corrective wave (iv) up.
This is how that same pattern/fractal played out in Feb 2021:
Note that final panic driven drop in a subwave c of wave -y- of (y).
Under that structure thecurremt leg down in a subwave a of wave -y- down can stretch down to 100% ext of the wave -w- down = 3,996.
According to Gann, 4,004 is an important level because its 540 degrees down off the mid Oct high:
Under that wave count/scenario:
- Test of 4,000 level should be followed by a strong bounce back up to 4,200 in a subwave (b) up of wave (y) down, and
- Under that wave count the final leg down in the subwave (c) of wave (y) down should come as a 500+ point crash from 4,230 down to 3,700 – 3,500.
Such a strong exhaustive drop would paradoxically set the stage for another macro rally.
Again, lets look at the similar pattern played out in Feb – Mar 2021:
Note how the final accelerated drop in a subwave c of wave -y- of (y) was followed by even a stronger recovery.
In conclusion:
- The bullish count is invalidated; and
- We should watch two macro bearish paths. One leads down to 3,823. Another allows bears to drop to 3,700 – 3,500.