ES Future Short Covering Rally 8/7/2020
ES at the 4 hour view.
It's pretty obvious that today had some profit taking in the morning. However, the ES rallied in the afternoon due to 1) high liquidity levels where there were a lot of available buyers below and 2) eager bears who are trying to get their money back and covered their shorts again.
This is why you need to look at internal market data. Price action is great, but price action alone can trick you. The ES has two paths at this point. Both are not good for permabears.
Path 1: ES pulls back due to being overextended. Bears get frothy at the mouth again and short with their remaining ammunition. However, liquidity is still high and the bears will end up short covering their way back to all-time highs. Bears will try to short again at all-time highs in "hopes" of a double top pattern, but end up short covering to a new all-time high.
Path 2: ES reaches the all-time high first. Bears get excited and short everything they got. Liquidity remains high. However, the ES will be very overextended. This will cause a bigger pullback to one of the green lines (more likely the dashed green line). However, there are buyers waiting below. ES goes back to the all-time high. Bears who shorted at the previous all-time high will then cover their shorts to a new all-time high.
Why are these two paths similar? Liquidity levels haven't been this high since December 2019. The flag support at the bottom has yet to be decisively broken. It was poked through, but never closed under it. Plus, if you look at history, the market is designed to hunt bears first, then the bulls.
It will take 7 specific conditions to create a massive correction. So far, we only have 2 of 7 of those conditions and they are the minor ones.
I would only long at support. Do not short this market unless the stars align with those 7 conditions.
It's pretty obvious that today had some profit taking in the morning. However, the ES rallied in the afternoon due to 1) high liquidity levels where there were a lot of available buyers below and 2) eager bears who are trying to get their money back and covered their shorts again.
This is why you need to look at internal market data. Price action is great, but price action alone can trick you. The ES has two paths at this point. Both are not good for permabears.
Path 1: ES pulls back due to being overextended. Bears get frothy at the mouth again and short with their remaining ammunition. However, liquidity is still high and the bears will end up short covering their way back to all-time highs. Bears will try to short again at all-time highs in "hopes" of a double top pattern, but end up short covering to a new all-time high.
Path 2: ES reaches the all-time high first. Bears get excited and short everything they got. Liquidity remains high. However, the ES will be very overextended. This will cause a bigger pullback to one of the green lines (more likely the dashed green line). However, there are buyers waiting below. ES goes back to the all-time high. Bears who shorted at the previous all-time high will then cover their shorts to a new all-time high.
Why are these two paths similar? Liquidity levels haven't been this high since December 2019. The flag support at the bottom has yet to be decisively broken. It was poked through, but never closed under it. Plus, if you look at history, the market is designed to hunt bears first, then the bulls.
It will take 7 specific conditions to create a massive correction. So far, we only have 2 of 7 of those conditions and they are the minor ones.
I would only long at support. Do not short this market unless the stars align with those 7 conditions.