$ES: A Bear Trap Followed by A Bull Trap

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$ES #ES-mini #trading setup #Elliott Wave

We started Tuesday morning with a picture perfect short setup:

ES-mini 30 min chart

I note for members of my chat room: “5,506 is the key level to watch. What bears need is a spike over 5,506 followed by a brutal reversal and push under that level triggering the textbook “failed breakout” short setup”.

By 10-49 AM EST we got ES-mini dropping hard:

ES-mini 30 min chart posted at 10-49 AM EST

And this is when U warned members of my chat room to set tight stops for short positions:

“That kind of straight drops often do not have folowthrough. That drop could be a part of a corrective wave b down. Therefore if you are short please keep your shorts on a short leash adjusting stops.”

The main reason for concern was that wave count:

ES-mini Daily chart posted at 10-40 AM EST

And then we got a wild rally:

ES-mini 30 min chart

What we got is a corrective looking clean a up, b down, c up pullback off the low made on Friday evening.

Now let’s look at the same Daily chart that allowed me to call the morning bottom:

ES-mini Daily chart

After testing the Green Demand zone this morning ES-mini rallied strongly up to the Red Supply zone.

The ideal scenario would be to get a drop down to the lower Green Box that would complete the a down b up, c down structure of the subwave (b) down of wave (v) up.

There is an alternative bullish count:

ES-mini 120 min chart

Bulls may argue that the subwave (b) down of wave (v) up has bottomed already and a new leg up in a subwave (c) of wave (v) up started. It is possible. But I have a problem with that bullish scenario. Specifically, I do not like a micro structure of the September decline. It does not look like a textbook a-b-c, a hallmark of a subwave (b) down.

5,567.50, the Tuesday high. will be the key level for bears to watch. If bulls squeeze a nominal higher high on Wednesday that will be the third consecutive higher high. That would make the market vulnerable for a reversal. If a higher high is followed by a reversal and drop back under 5,567.50, the Tuesday high, that would trigger our favorite failed breakout short setup.

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