SPX
As can be seen in the linked related idea, my "theory" moving forwad turned out to be correct.
Let me begin with explaining the recent turns of events in price action.
Ever since the corona-crisis low in March, bulls saw this is an opportunity to pick up great amounts of sell volumes where traders have only been looking for shorts. I wont be arrogant here, ever since the aggressive selloff was instantly reversed on the 10th June, my outlook was rather bearish. You can pull your hair until you're bold trying to get a reasonable explanation for this V-shaped reversal, but it doesn't matter. What matters is what the price has been telling you since March, and that is BUY. This stands, and keep standing until there has been VERY clear signs of a strong reversal, even then I would be reductant buying.. a "reversal" feels way too obvious in this current market for me to feel confident about that trade. I will see every attempt at a bear reversal to be a great buying opportunity for at least another breakout upwards.
If you take a look at the linked idea, you can see I predicted a major beartrap to form once we broke a new ATH.
Let me explain this theory abit in detail since it turned out to happen.
1. You have to assume smart traders have been constantly buying since the low in March, they are building their positions on every breakout to new highs, on every reversal attempt etc.. This means by now they have a very large and profitable trade going for them.
2. When the market broke through ATH, this most likely caught alot of weak traders off-guard, thinking "how the F'CK" can this market trade higher, looking at news pundits and articles telling the world how bearish the economy is. Even though that is true, the market is in a STRONG bull and the only thing you should do is BUY BUY BUY. This breakout to a new ATH is almost guaranteed to have good follow-through, there are smart traders who cant sell cause its too good of a setup, also short traders are covering their positions and new longs entering who are "finally" convinced about this strong move.
3. Both sides are buying relentlessly, at least for a start. But this creates a very large amount of volumes going to the buy side, which is a great opportunity for smart bulls to cover with great profits in these large volumes. As you can see given the steepness of this breakout, this move is very climatic and doomed to end up in a climatic "reversal" or rather a pullback/beartrap.
4. The bar marked with green (3327), is the first bearbar in this recent move. This means the bulk of smart traders believed this was a good place to sell, and will act as a magnet moving forward. Thats why I predicted a move to cover this gap down to 3327, where bears who have been shorting this climatic move all the way up will finally be able to cover their shorts, and longs will see it as a great area of accumulation.
5. The above means both sides (bears & bulls) will look to buy and the trend will continue, and this time I believe there is a much bigger move on its way, this leaves the current zone a very interesting price to start looking to fade this current pullback/beartrap we're seeing and start trading long.
With above being said, lets look at the short term price action and what potential setups I will be looking for.
1. The current beartrap/pullback has very good momentum, so I believe we have not seen the bottom yet.
2. However the recent days have shown a trading range (two-sided trading), which can be expected given we're trading in a great zone for accumulation.
3. But, this trading range have made it too easy for bulls to get a very good price in their longs, and I do believe the bulls which have entered already will have to be "scared off" in order for the smart bulls to start entering and take over the market. This move should also trap in more bears who start getting conviced this is the "end-of-the-world once in a lifetime" trade.
4. I can expect more two-sided trading to happen moving forward, but I will be looking for a sell-climax to scare off the early entered bulls before I take any reversal trade. I also want to see a V-shaped bullmove to instantly pick up that price in case it happens, leaving traders with what seems like an uncomfortable price to buy if you compare to the low.
So to summarize the above:
1. More bearishness/two sided trading is likely. Can give a decent setup for another bear-trade.
2. Want to see a climatic selloff, to trap in more bears and scare of any remaining longs.
3. Want to see a strong reversal before switching to long, should be a V-shaped recovery and be so fast so bulls are missing the best prices.
