ES' Ascending Wedge Ending, but Bull Flag Continuing 8/10/2020
This is the ES at the daily view.
The ES has been stuck in an ascending wedge for several days now. This explains why the range has been so small lately. The ES should break this wedge by either tonight or tomorrow.
Either A) we will get a blow off top pattern or B) we will get an immediate pullback. Scenario A is the better pattern to exploit. The parabolic rise to the all-time high is perfect for a long scalp. Then one can swing trade the fall and subsequent oversold bounce. Scenario B is much worse for the volatility trader. The measured move for that pullback would be around 80-90 points. Then a slow, agonizing melt up to all-time high. Why is the pullback so small? Simply, the liquidity keeps climbing. We haven't had liquidity levels this high since November 2019. Any pullback or dip may be bought due to the multiple groups of buy orders waiting below.
There is a multi-day bull flag from mid-May to today still playing out now. That fall from June 10-12? That was the meat of the downward movement of that flag. The measured move for that bull flag is... you guessed it... at the previous all-time high around 3400.
Most likely scenario:
1) I am expecting the patient bears to get exciting and short at the previous all-time high. Liquidity will most likely still be high. Market breadth is increasing too (apparently with the Russell flourishing).
2) Since liquidity is stronger now than it was in February/March, this will likely be a pullback than a crash.
3) The high liquidity and FOMO buy orders below will melt the ES up back to 3400.
4) Once the ES reaches above 3400, then we can expect one of the last short-covering rallies to push the prices up further.
5) At that point, every former bear and person will scramble to try to put a long position in and drive the prices up to possibly 3460 or above.
6) If all these steps are in place, then we may have the ingredients for a correction to take place. Why? Simply exhausting the supply of buyers in a short amount of time.
The market is designed to hunt for shorts first before hunting for longs. The market is primed for a correction. However, it's ridiculously high liquidity levels that's keeping this market afloat. If we do get a correction, it will not be immediately after these steps. Between the markets and traders, the markets have time at their advantage. Most traders do not have the patience to see how the market plays out. A correction will happen when people least expect it. If corrections weren't surprising, then trading would be so easy, wouldn't it?
There is one key event that may play into the liquidity levels. That's inflation. If the bond markets, dollar strength, and TLT are in sync of an inflation signal (inflation around 5-6%), then the Federal Reserve may have to cut down on their money printing or QE. The PPI report is tomorrow. I highly doubt they'll show accelerated inflation. If accelerated inflation is verified, the Federal Reserve will have to cut down on their money printing. If inflation reaches above 5-6%, then it will be a snowball effect to 15% or above - and the Fed cannot stop it once it rolls. If that scenario occurs, then we might see liquidity decrease substantially and bring back volatility once again.
The ES has been stuck in an ascending wedge for several days now. This explains why the range has been so small lately. The ES should break this wedge by either tonight or tomorrow.
Either A) we will get a blow off top pattern or B) we will get an immediate pullback. Scenario A is the better pattern to exploit. The parabolic rise to the all-time high is perfect for a long scalp. Then one can swing trade the fall and subsequent oversold bounce. Scenario B is much worse for the volatility trader. The measured move for that pullback would be around 80-90 points. Then a slow, agonizing melt up to all-time high. Why is the pullback so small? Simply, the liquidity keeps climbing. We haven't had liquidity levels this high since November 2019. Any pullback or dip may be bought due to the multiple groups of buy orders waiting below.
There is a multi-day bull flag from mid-May to today still playing out now. That fall from June 10-12? That was the meat of the downward movement of that flag. The measured move for that bull flag is... you guessed it... at the previous all-time high around 3400.
Most likely scenario:
1) I am expecting the patient bears to get exciting and short at the previous all-time high. Liquidity will most likely still be high. Market breadth is increasing too (apparently with the Russell flourishing).
2) Since liquidity is stronger now than it was in February/March, this will likely be a pullback than a crash.
3) The high liquidity and FOMO buy orders below will melt the ES up back to 3400.
4) Once the ES reaches above 3400, then we can expect one of the last short-covering rallies to push the prices up further.
5) At that point, every former bear and person will scramble to try to put a long position in and drive the prices up to possibly 3460 or above.
6) If all these steps are in place, then we may have the ingredients for a correction to take place. Why? Simply exhausting the supply of buyers in a short amount of time.
The market is designed to hunt for shorts first before hunting for longs. The market is primed for a correction. However, it's ridiculously high liquidity levels that's keeping this market afloat. If we do get a correction, it will not be immediately after these steps. Between the markets and traders, the markets have time at their advantage. Most traders do not have the patience to see how the market plays out. A correction will happen when people least expect it. If corrections weren't surprising, then trading would be so easy, wouldn't it?
There is one key event that may play into the liquidity levels. That's inflation. If the bond markets, dollar strength, and TLT are in sync of an inflation signal (inflation around 5-6%), then the Federal Reserve may have to cut down on their money printing or QE. The PPI report is tomorrow. I highly doubt they'll show accelerated inflation. If accelerated inflation is verified, the Federal Reserve will have to cut down on their money printing. If inflation reaches above 5-6%, then it will be a snowball effect to 15% or above - and the Fed cannot stop it once it rolls. If that scenario occurs, then we might see liquidity decrease substantially and bring back volatility once again.