Here is the weekend look at the ES/SPY going into Jan 24-28. Last week the ES started out above the upward trend line and above the neutral box. By Friday price had broken below the trend line and the bottom of the neutral box closing just above the 786 Fib, but below the 200 SMA.
The ES has given up most of its relative strength and is threatening to re-test the Oct low at 4260. Now that price has confirmed a new low below the longer term neutral box and sits below the 200 SMA my bias is leaning bearish. Unless price can hold above the Oct low and reclaim the neutral box I would expect lower lows. Similar to the NAS the path of least resistance is now lower as sentiment is repricing everything to pre covid levels as the stimulus is being removed. We have moved from a period of expect rate reductions to a period of expected rate hikes. With this in mind a correction back to the pre-covid trend is now looking possible. A move back to to the top of the longer term trend would take the ES back to the 4000 level. The blue trend line on the chart identifies the top of the old trend.
The challenge in trading this thesis is that price does not move in a straight line. In fact the ES may bounce aggressively going into a very important week for the market. The FED rate decision will be announced on Wednesday and many of the mega caps will report earnings this week including MSFT, AAPL and TSLA. I would not be surprised to see a short covering rally into the rate decision and then some serious volatility afterward. It is impossible to predict how price will react. So as always wait for price to confirm trend before committing heavily to any position. The easiest route this week would be to remain a spectator until a clear trend is established. Volatile choppy price action can be very hard to trade unless you are a skilled scalper. I will attempt to provide updates as things play out.
Weekly events....
Monday... Earnings HAL, IMB
Tuesday... Earnings MSFT, JNJ, LMT, MMM, TXN
Wednesday... FOMC rate decision & Powells press conference!!! Earnings... BA, T, ABT, TSLA, INTC, NOW
Thursday... Jobless claims, Durable goods Earnings... MA, NUE, MCD, LUV, AAPL
Friday... Consumer spending & Univ. Mich Sentiment Earnings.. CAT, CVX, CL
Bullish Notes.
Potential short covering rally into key earnings and FOMC
Technically oversold
Fed surprises market with dovish commentary
Bearish Notes...
Confirmed double top and trend break
Rate decision worries
Disappointing mega cap earnings
Taper tantrum accelerates
10 year yield breaks 2%
Broad selling in ETF by index investors.
Panic
No reason to buy if lower prices are expected
Comment:
The Oct low has been broken. Bulls need a close back above the Oct low today if they want some sort of relief rally. So far the selling has been very aggressive. 4000 level definitely in play to the down side if price doesn't bounce soon.
Comment:
Held the Oct low on the big bounce. Just chopping sideways until the FOMC
Comment:
Here is how the ES closed out the week. Continued to chop like the NAS and held above the OCT low. So just like the NAS it had a chance to sell off deeper this week but didn't. This is a positive for the bulls.
Comment:
Weekly look. Closed above the Oct low and the 50 week SMA.
