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Red Dragon Leo

ES Morning Update May 6th 2016

Posted: 06 May 2016 06:11 AM PDT

Market still under falling trendline of resistance and horizontal support from an early April trading range.

The MACD’s now have triple positive divergences on them, making higher lows as the market drifts lower.

Generally speaking when the first move off of the employment numbers data release is the wrong direction. Meaning if it goes down from it then it should turn back up the rest of the day. If it pops higher from it then it usually fades back down the rest of the day. Considering how oversold we are on the short term, along with the positive divergences and support zone we are in, I suspect that pattern will repeat and we’ll turn back up today after some early selling pressure dries up.

On a daily close the 2040 SPX zone is a very important level. Closing below that area today would be very bearish for Monday and all of next week. Since we all know where this market is going in the month or so it’s just a matter of trying to catch a bounce to short at, which so far we haven’t gotten much to work with. I’m not interested in buying any dip but only interested in shorting any bounce. If there’s going to be a bounce today would be a good day to do it, but sometimes they just keep drifting lower day by day not letting the trapped bulls out or the bears on the sidelines in.

So for now I’ll just wait for that bounce before shorting as we are still early in this big move down and shouldn’t be at that point where we just drop hard day after day without any brief rallies back up… but that period is coming, at it will probably be in the 2nd half of May. Until then I still expect at least a one day rally here really soon. I’m happy to wait on it.

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Red Dragon Leo

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Red Dragon Leo

ES Morning Update May 5th 2016

Posted: 05 May 2016 06:15 AM PDT

Futures hit the falling trendline of resistance afterhours and briefly pushed through it (hitting 2060) before falling back to trade sideways riding that trendline.

The MACD’s on this 2 hour have more room to go up but the 60 minute chart is rolling over suggests a pullback in the morning and then a turn back up later on.

Looking at the various time frame on the ES Futures and the SPX Cash we do appear to be close to a short term bottom. While the 60 minute chart on the futures acts like it’s going to rollover and push the market down the other time frame charts suggest that the market isn’t ready to collapse yet as they want to turn up for a few days or so. And since we had brief pierce of the falling trendline of resistance afterhours and are currently choppy sideways this suggests the pullback should be small as the market wants to go back up through that trendline again and try to hit the next falling trendline up a little higher.

Patternwise we are making an “Inverted Head And Shoulders” pattern on this 2 hours chart and the smaller timeframe charts as well. What we might see is the futures drift down some early riding that falling trendline to reset the overbought 60 minute chart and make a slightly deeper “Right Shoulder” for the IH&S pattern. That would leave the afternoon session and/or Friday for the breakout to the upside to happen. It would also make an ABC pattern of wave up from yesterday’s low, which the breakout wave would be the C wave up to end the pattern sometime later today or Friday morning.

That is my preferred scenario and the one I see that has the best odds. However, we still only came close to the 2042 target on the SPX Cash (about 2035 on the ES Futures) and it’s still possible that this first attempt rallying up fails to make an ABC up and just drops at the open and makes another lower low today. If so, then I’m still going with the same target zones of 2035 on this futures chart and 2042 on the SPX cash. On the pullback (for either scenario) the first support is the 2045.75 level from the prior low on 4/29 and then of course the “Head” of this IH&S pattern, which was yesterday’s low 2039.00… break that and 2035 is next followed by 2026.

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Red Dragon Leo

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Red Dragon Leo

ES Morning Update May 4th 2016

Posted: 04 May 2016 06:21 AM PDT

Futures did rally yesterday after a midday low but fail to hold it this morning. This throws the ABC up pattern out the window.

MACD’s still oversold now and that 2035 support zone looks to be the target for this gap down this morning.

This move down of course changes the wave count. The market was weak yesterday on the rally up, which was a clue that the count could be wrong and now it’s clear it was. The other scenario I spoke of was that we might still be in a larger C wave down from the 2094 high on 4/27, which suggests we are in the final 5th wave down inside that C wave down. I think I posted in the chatroom that 1.618% of the A puts the C wave around that 2035 zone (give or take a few points either way of course).

The move down we are having now just doesn’t seem like the start of anything big yet. When this bottoms today/tomorrow there should still be another series of wave up… which “could” take us back up to a double top from the 4/20 high of 2100 on the futures and 2111 on the SPX cash. It should be a lower high but I wouldn’t be shocked at all if they didn’t briefly pierce through it to run the stops of all the bears before rolling over for real. I can’t say for sure that’s the plan but on the daily chart of the SPX Cash that 2111 makes a nice “Head” with the “Left Shoulder” at the 2075 4/1 high. I think at this point they are planning on making a right shoulder before they tank it. How high up they rally is unknown right now.

The overall picture tells me we are still going down to that last FP we got on the SPY but the “when” part is unknown. I was looking for it to have already started since we hit the upside FP of 210 on the SPY back on 4/20, and that still “could” be the high but they don’t seem ready to just drop it off a cliff yet… hence my speculation of a right shoulder first. The reason I was expecting us to go down further first was based on a comparison to the 2116 SPX high to the 2019 SPX low back in early November. That was almost a hundred points down and I thought we’d do something similar here. But if we stop around the 2035 zone on the futures then we are under 70 points off the high, much less then expected.

On the SPX there is huge support around the 2042 level on a “Daily Close”… meaning that if (when, as it coming… but probably not today) we close below that level we should drop like a rock. This level is the 320 MA on the Daily chart, and extremely important for the bulls to hold. So I fully expect a bounce from that zone, which looks like it will be hit today. Then we should start the ABC rally up I was looking for previously, but it should be a stronger one and last longer. It will be the move up that creates the right shoulder on the daily chart. Again, I don’t know how high it’s going but odds favor it lasting all this week and into early next week.

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Red Dragon Leo

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Red Dragon Leo

ES Morning Update May 3rd 2016

Posted: 03 May 2016 06:03 AM PDT

Market is showing signs of weakness as it failed to rally up again on it’s first up thrust to hit the falling trendline.

MACD’s rolling over and “should” turn back up at some point today making a “higher low” then the prior -5 area low.

Yesterday I suggested we’d go up in some kind of ABC pattern to hit or come close to the falling trendline. I still think that’s possible, even with this morning having a gap down open. While this could be the start of another big move down, or just an extension of last Thursday/Friday’s C wave down, I think it has one more move up yet to come.

I’m looking for a move down this morning that should NOT break the prior low of 2045.75 last Friday which then should turn back up into Wednesday and/or Thursday for the completion of this ABC up. At the open I suspect we’ll see some early dip buyers that move it up a few points quickly, then we should go back down retest the premarket lows (currently at 2057.25) to lure in the bears. It should go lower to take out those “stops” long the futures before the open but again, should NOT take out last Friday’s low. This is my higher odds forecast.

In the event we take out last weeks’ low then the next support level is around the 2035 area from prior lows back in early April. That horizontal support zone should hold the fall on the first hit of it. Also we have a new falling trendline that is in that same 2035 zone (if the market fell today to make new lows). That’s your downside targets should my primary scenario fail today. If not, then we should top out on Wednesday or Thusday for the ABC move up that I’m thinking has the highest odds of playing out.

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Red Dragon Leo

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Red Dragon Leo

ES Morning Update May 2nd 2016

Posted: 02 May 2016 06:27 AM PDT

Resistance on the upside is this falling trendline, which is dropping into the horizontal resistance zone around 2080-2085 it appears.

The MACD’s got oversold Friday and now moving up on this 2 hour chart. The 6 hour chart supports a move up too.

Today I’m some light volume as traders get back to work slowly, which is the case for most Monday’s it seems. There could be some early selling but today looks to be “float up” day where we don’t rally hard but just kinda float up some. I think we’ll have an ABC up between today and tomorrow. So after a possible early morning drop the float up “should” be the A wave up. Then we should see a B wave down later in the day or Tuesday morning. Finally the C wave should complete some time on Tuesday I think. Maybe it makes it up to the falling trendline, which will be in the 2080 zone by then I think.

There’s also a chance that the B down happens near the open and the C up starts around midday to complete by the close today or Tuesday morning. I’m not sure exactly how they are going to play it out but I do expect some kind B wave down and then C wave up into Tuesday ideally. So I’ll be looking for another short Tuesday or when that C wave up looks complete.

However, there’s another count that’s possible. The larger C wave down from last Thursday that started around 2093 with that early morning “shakeout rally” that hit the falling trendline of resistance and then rolled over into the close and Friday could still be in play? If so, then today’s rally up (and Friday’s rally up at the close) is just a smaller wave 4 up inside that larger C wave down. That suggests we’ll have a 5th wave down to make a slightly lower low today. Which wave it is correct is unknown presently, so I’m just planning on waiting for some ABC pattern to show up (and to hit some overhead resistance level) to get a better feel for the market. Then I’d look to short again.

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Red Dragon Leo

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Red Dragon Leo

ES Morning Update April 29th 2016

Posted: 29 Apr 2016 06:37 AM PDT

Market hit falling trendline yesterday and rolled over into what appears to be a wave C down.

MACD’s are oversold here but have plenty of room to go down more on the higher time frame charts.

Yesterday I said that I thought we were in a C wave down with the open being the smaller wave 1 down inside that C wave. I suggested that we should rally yesterday for the smaller wave 2 up and that it might breakdown into a mini ABC… which it did. I thought we’d only see the mini A and B yesterday and the mini C up to complete the smaller 2 up by Friday morning. I was wrong on the time frame as it did it all yesterday with a clear ABC up to hit the falling trendline by midday. Then the smaller wave 3 down (still inside wave C down) started and took most traders by surprise I think.

So, where are we today. It looks like the smaller wave 3 down (inside wave C down) is either still going on will end shortly after the open. Today is tricky as it’s a Friday and it’s common to see them hold the market up from some huge move down as they don’t want to panic the sheep on a weekend. My best guess is that the sideways chop back up late yesterday and afterhours is some kind of smaller wave 4 and we will complete the C down today with the final “smaller wave 5” down early this morning. Right now it’s holding horizontal support around 2065 but it sure looks like it wants to break it. It’s a triple bottom too from hitting it yesterday.

I’m thinking that early this morning we’ll break that horizontal support around 2065 on the ES Futures and drop to the 2055-2060 area where there was another prior low at 2058.50 on April 18th. If they pierce below there slightly they should take out all the bulls stops’ that are long from that level and end the smaller 5th wave down inside the C down. Then the rest of day we should see some move back up to start the next series of ABC’s before we go down again next week.

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Red Dragon Leo

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Red Dragon Leo

ES Morning Update April 28th 2016

Posted: 28 Apr 2016 06:20 AM PDT

Futures did little to nothing after the FOMC minute yesterday but rallied into the close. Afterhours they dropped in what appears to be the start of a C wave down.

MACD’s are finally showing us some clues from being flatlined the last few days. Looks like we’ll be oversold at the open and try to turn back up at some point in the day.

Ok, yesterday Janet Yellen Yelled and Yelled but bulls weren’t listening. However, the bears were… and while they didn’t pounce on her right after she spoke they did pounce on the market late last night after the close, taking the futures down to horizontal support at 2070. Since that’s the first hit of that level since the 25th it makes a double top and should be good support for today.

Here’s what I’m seeing… a market that will open and likely retest the 2070 premarket low (could pierce slightly or make a slightly higher low) and then turn back up later in the day. There’s a new falling trendline of resistance coming in just a hair over 2090, but that seems like a dream to see it rally back up that high. However, miracles do happen is “if” they do get up that high it’s the short we’ve all been waiting for…

I think what we have at yesterday’s close, or the afterhours high, was the top of a B wave that started at the 2070 low on April 25th. The A wave down then was from the 2105 high on April 20th, which suggests we are starting the C wave down today. In that C wave there should be 5 smaller waves. The wave 1 looks to have happened afterhours and will give us our gap down at the open. If we retest the 2070 area again after the open then that should end the wave 1 down. The rest of today should give us a wave 2 up (inside the larger C wave down). That wave 2 might breakdown into some smaller waves as well, but after it ends we should see the wave 3 down inside the larger C wave down.

So, when will all this happen? My best guess is that this wave 2 up will breakdown into some ABC pattern or something. We’ll see the A up and B down today, and then maybe the C up early Friday to end this wave 2 up. Then the wave 3 down should start later in the day on Friday if all goes well. This is just speculation of course but right now it’s looking good that we topped yesterday into the close and will just start making lower highs from here on out. I’d look to short the bounces, but know that this move up today might have a higher high Friday morning (below that new falling trendline in the 2090 area) before this bounce is over with.

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Red Dragon Leo

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Red Dragon Leo

ES Morning Update April 27th 2016

Posted: 27 Apr 2016 06:01 AM PDT

Same as yesterday… just riding the trendline sideways

No clue here in the MACD’s as they are flatlined on most all time frames

Not much to say that wasn’t said yesterday. The market is waiting on the FOMC meeting today at 2pm EST. I’d expect some wild swings around that time as that’s what usually happens. Overall, I’m still looking south for the next big move but that doesn’t mean that they can’t squeeze it up some today in a shakeout move to fool the bulls into going long and the bears back to sleep. Regardless, I’m expecting the next 1-2 months to be down.

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Red Dragon Leo

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Red Dragon Leo

ES Morning Update April 26th 2016

Posted: 26 Apr 2016 05:48 AM PDT

The Futures are just riding both of the rising trendlines of support and seem to be waiting on the FOMC meeting for a direction.

The MACD’s on this 2 hour are rising but look tired and could roll back down anytime. The 6 hour chart is resting on the zero line and could turn up or down?

Really there’s not much that has changed since yesterday as the market is clearly not going up or down huge until all the Fed’s speak Wednesday at 2pm. Pattern wise this slow grind up is just a bear flag. But with the FOMC tomorrow you can’t really rely on it to work out. We all know that they have some wild swings up and down around the first 5-10 minutes before the announcement and shortly afterwards. We seen moves up of 20-30 points in 60 seconds only to be reversed back down within minutes. So again, I don’t think there’s much you can read out of today’s chart as we need to get this meeting behind us first.

Since we know where the market is headed over the next 2 months, as well as the actual target, it’s just a matter of inching into positions the best you can both before and after the meeting tomorrow. It’s not likely that you’ll catch the exact best entry but you can still make a lot just by knowing where you are going too and the likely timeframe. As for today, it’s probably going to be as boring as yesterday and one you might just take off (unless you are a day trader looking to sclap a few points) as I’ll be look to take my positions tomorrow.

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Red Dragon Leo

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Red Dragon Leo

ES Morning Update April 25th 2016

Posted: 25 Apr 2016 06:07 AM PDT

Tough read here but support is in the 2070-2080 range.

Not much help here on the MACD’s either as they are flat-lined under zero.

Might have to just go with my gut more today as technically I don’t see any obvious clues as to the direction. I’m thinking that we’ll drift down some in front of the FOMC meeting this Wednesday. Uncertainty about what the Fed’s might say usually leads to traders get out of positions and since we’ve been in a long big rally up I’d have to think we’ll go down some in front of it.

Monday’s are usually one of the lightest volume days of the week, and that’s been especially true the last several weeks. That leans more toward small moves down as without some serious selling the dip buyers keep coming back and trying to rally the market more. I don’t see much on the upside though as the resistance overhead is very strong, especially with the uncertainty of the meeting still ahead of us.

I could see a choppy day today as the market drifts more down then up but probably doesn’t gain much ground in either direction. We’re still in a long rising wedge on the SPX cash, that looks ready to break today, but might just hold on today and push the breakdown until tomorrow. This of course assumes the high on the SPX was last week at 2111.05 and so far it’s looking strong. But we’ll seen many FOMC meetings put in an important top so I’m not ruling out some kind of quick squeeze up that day to take out stops making a slightly higher high before reversing back down to start our journey south.

Today however is just a flip of the coin as I don’t see any direction up or down clearly with high odds of either one. The big picture… I stay down starting this week, but the short picture (as “just today”) I’m unclear. Again, I’m leaning more likely toward the downside then up but I don’t have high odds on it. More likely we’ll see the down play out early on this morning and the midday float back up and then some more chop into the afternoon and close with nothing much really happening on a closing basis for either side.

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