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ES has set another bulls' trap
Yesterday night I posted a video where I shared my expectations for another corrective a-b-c move higher. The market decided to play that structure in the most possible tricky way…
But let me start from explaining you what we have been witnessing off the top ES made on 1 May 2019:
ES 3000 ticks updated at 5:10 PM on 5/10/2019
Off the top made on 1 May 2019 we got (a)-(b)-(c) down it was not enough to cool down bulls. The market started to rally but soon enough bulls got exhausted.
Look at the rally labelled as X up. The rally of that rally is ugly in a sense that you can not get either five or three wave structure. Moreover, you can see that that rally in wave X failed to make a new higher high over the previous high made by wave ( b ) up.
Off the top of that wave X we have got another (a)-(b)-(c) structured decline:
ES 3000 ticks updated at 5:10 PM on 5/10/2019
After ES topped in wave X up we got two more lower lows in wave ( a ) and ( c ) down. And by that point in time we have got so called “Double Three” corrective structure.
That structure is composed of two (a)-(b)-(c) structures connected by a rally in wave X in between. That could be all of the pullback.
What it the reason why such an ugly structure happens?
Any correction is supposed to calm down a prevailing market force. And in an up trend the prevailing force is bulls.
They were raging and got exhausted after four months of relentless move up.
A correction is supposed to make a prevailing force to doubt continuation of the trend.
It is supposed to convince bears that the move up has completed. Bears should start shorting again to prepare fuel for another move higher.
Covering shorts is what helps the market to new highs.
We could have started a new rally off a new low reached by that W-X-Y pullback, but…
It was too shallow and not scary enough to alter the crowd sentiment!
ES 3000 ticks updated at 5:10 PM on 5/10/2019
Off the low of the wave Y down we have got a up – b down – cup. And wave b down dropped to a new lower low.
Again we see a sequence of lower lows and that current rally of wave c up stopped under the top of wave ( b ) up of Y.
By the way that c of ( XX ) up can keep extending higher up to 2920.
The right question a trader should ask is “What a move would frustrate traders the most?”
ES 3000 ticks updated at 5:10 PM on 5/10/2019
The most frustrating scenario will be to price to take out the previous top and 2,900 and make momentum traders to buy that breakout.
You may see here a perfect example of an Expanded Flat corrective structure in wave ( XX). First, wave b down convinced bears about a breakdown
and then abruptly reversed and played out a strong rally in wave c up.
If the market takes out 2,900 on Monday many traders would buy a breakout… only to see it collapsed back under!
in that a-b-c structure within an expanded flat structure wave b down makes a new lower low but the final wave c may get really stretched, it can get to 176.4% ext of wave a up (yesterday’s rally)
that makes that structure really tricky to trade if you do not know that pattern. Two fakeouts in a row: first a fake breakdown, second a fake breakout!
My expectation is that we should get another (a)-(b)-(c) down structure.
That (a)-(b)-(c) down may target 2800 level. But the real goal of the third a-b-c down is NOT to make new lows.
The real goal is to burn time, to finally make bulls believe the rally is over. That structure composed of three (a)-(b)-(c)’s is called “Triple Three”.
That is so called “correction through time”. Just imagine another three swings within that same declining channel. Traders will literally stop trading it!
Why that is happening? Who is manipulating those swings?
We should blame bulls who stick to their longs. The market is like an overloaded air cargo. It can not take off with so much load onboard.
Until folks dump their holdings that plane not gonna fly again. The crowd sentiment should switch to bearish.
This is what works behind those a-b-c structures. Each leg in a-b-c structure is a shift in market sentiment.
A rally goes on as long as there are people who do not believe in the rally! This week we saw several cases when too many traders played “Buy The Fucking Deep” trade.
We need to see an inverse situation. We need sentiment to shift bearish when traders will start play another trade, “Short every move up”.
This is why I expect another decline in the market next week.