$ES #ES #Macro #Trading Setup
Let’s first look at the daily chart of S&P cash index:
The last three trading days have been small doji candles. That is contraction in volatility.
Most likely it will be followed by expansion in volatility.
Now note well established down trend in daily volume. This rally kept pushing up on fumes.
Now let’s get back to the two primary macro scenarios / wave counts we have been watching:
(1) the bullish scenario:
Bulls consider the Nov’23 rally as a micro wave i up. Then we should get a corrective wave ii down before the next leg up in a subwave a of wave iii up.
( 2 ) the bearish scenario / wave count:
Under the triangle scenario the Nov’23 rally was just a corrective subwave (b) up to be followed by a very strong drop in a subwave (c) down. Interestingly, here ES hit a high that is 360 degrees/days away from the Nov’22 high.
On a micro scale, we can attempt counting the November rally as an unfinished five wave up move:
As long as bears hold ES under 4,565 they will remain in control. However, I would keep an eye on 4,571 resistance. If bulls manage to push ES over that level it can be considered a long breakout setup.
One important thing you need to understand about application of the Elliott Wave theory to unfolding rallies like that.
On a micro scale, we can attempt counting the November rally as an unfinished five wave up move. However, an unfinished five wave up structure like we do have at the moment is in fact a three wave up structure. A three wave up structure is a structure of a corrective wave.
If we get a three wave up corrective structure making a lower high that means the next leg down woudl make lower lows. So either we get a wave -iv- down followed by a wave -v- up to a higher high to complete the five wave up structure and we will confirm the bullish outlook.
Or, bears step in here, push ES under 4,400 and leave bulls with only a corrective three wave up bounce meaning that a break under 4,400 would confirm start of a large potentially impulsive move down that would make a lower low under 4,100.
The support 1 = 4,500.
The critical support 2 = 4,400.
I regularly use projection tool that I coded based on findings of W.D.Gann.
W.D.Gann was a legendary trader who created formulas that allow you to correctly predict important support and resistance levels for months ahead. You can read my explanation with numerous examples here and here.
Note that the rally stopped right at the Gann’s level of resistance, a 90 degrees up off the low made by re previous pullback.
If bulls lose 4,565 bears will be able to push it down to 4,459, the lower Gann’s level, a 45 degrees up off the low = 4,459.25.
There is a theory that Crude oil leads SPX by approximately 45 trading days.
This chart shows the blue line, the crude oil price shifted by 45 days:
Crude perfectly predicted the top on SPX in May and Aug 2022.
As you can see, this chart showing price of crude displaced by 45 days argues for S&P to turn down and start following crude.