$ES #ES #Macro #Expanded Flat
On November 8, 2023 I Outlined three paths:
This is what I wrote about the purple path:
The purple path: Bulls can push ES up to 4,450 – 4,460 violate the previous high made in early Oct’23 (4,430) and trigger forced short covering that would propel ES by 20-30 points higher. A pop over 4,430 followed by a brutal reversal and drop under 4,430 would trigger a macro short failed breakout setup.
Let’s look at the weekly char of S&P 500 index:
On the weekly chart shown above you can see that I consider this rally as the final subwave (c) of a corrective wave ( ii ) up.
This wave count considers the three wave move down off the July’23 high as a wave (i) down and the three wave up that followed as the wave (ii) up. That is the most painful type of a corrective sytructure called Expanded Flat. It consequently fouls both camps. First when the subwave (b) down of wave (ii) down breaks under the low made by the wave ( i ) down and convinces bears that a strong decline in a wave ( iii ) down started. Once bears bet a farm on shorts price turns up and jumps back over the previous low leaving behind all bears with underwater short positions. Then price keeps pushing higher without any pullbacks not letting bears to cover their underwater shorts.
The rally in a subwave (c) of wave (ii) up would not stop until it breaks over the high made by the first leg up in a subwave (a) of (ii). By doing that the market convinces bulls a new big rally is underway. This is when bulls go all in.
What normally happens next is that price turns down again and drops down hard, first back under the high made by the subwave (a) up, and then under the previous low made by the subwave (b) down.
On Friday ES-mini broke out over the high made by the subwave (a) up in early October 2023.
For ES-mini that high made by the subwave (a) of wave (ii) up at 4,430.50 is now the key support.
Bears need to break under that support to trigger that Expanded Flat painful scenario for a big drop.
There are two bearish macro scenarios.
(1) The most bearish alternative is that SPX topped in a corrective wave ( B ) up in July 2023 and has been working on a starting (i) down, (ii) up setup that should be followed by a strong drop in a wave ( iii ) down:
(2) The Triangle Consolidation scenario.
The main problem why I do not see bullish scenario is that the drop that bottomed in Oct 22 does not look like a completed corrective structure.
The best scenario that can explain that unfinished looking move down in 2022 is that we have been in a giant triangle shaped consolidation in some wave ( 4 ) down:
A triangle shaped consolidation is composed of five subwaves labelled A-B-C-D-E.
The idea behind that type of a corrective structure is that it wears out traders and make them lose understanding what the market intends to do next.
It keeps making erratic movements bouncing in between of two converging trend lines. But every new leg is smaller than the previous one in oppose direction.
I think we will have to keep on our desks both scenarios for months ahead.
Only if bears manage to break under 3,750 we will be able to discard the painful triangle scenario (2) shown above.
Again, to confirm the bearish outlook bears need to push ES-mini back under 4,430.