[Click on the picture above to learn what an ‘ABC’ technical trading set up is and to find out what the E-mini S&P 500 futures may do next ahead of an explosive move.]
I haven’t sent through a ‘Week Ahead’ update for the past couple of weeks because I’ve been on holidays in Queensland with my four-year-old boy Daniel. Stepping back from the market every now and again is a great thing to do because it clears the head and allows you to see the market with fresh eyes when you return.
I’m glad I haven’t been trading the markets lately because volatility has been elevated, but the market hasn’t moved very far. In other words, short-term traders have been shaken out of their positions whether they were bulls or bears. But the more the market continues to gyrate in this zone the closer we are getting to the real move.
In my last update a few weeks ago I pointed out the key areas in the E-mini S&P 500 to keep your eyes on and those levels remain in place. I said that the 2950 to 2990 area above current prices was the sell zone where I’d like to see a daily sell pivot from before I would be willing to act aggressively on the short side. The futures have started the week opening quite weak on the back of the next round of tariffs being put in place between the US and China.
So there is a chance the market could sell off from this area having reached within a few points of 2950 in the last few sessions. But I need to wait for the daily sell pivot from here which will be confirmed on a daily close below 2913. Until that happens the most recent pivot on the daily charts is a buy pivot, so there is still the chance of higher prices before we turn down again.
The current situation is quite explosive because there are now plenty of dominoes lined up beneath the market. What I mean by that is that there will be stop-losses below recent lows that will feed into bigger stop-losses below the 200-day moving average. Once the 200-day moving average cracks, prices will move so fast that it will be nearly impossible to get on to a short trade. So it is necessary to look for entry points prior to that happening.
All bets are off if good news causes a breakout to new all-time highs. Anything could happen above there and I certainly don’t want to remain short if that happens. The fact that I am happy to stop out above circa 3050 gives me a clear line in the sand to calculate potential risk/reward on a short trade, so it is actually a good thing to know exactly where I will be wrong. If the market does turn back down again and we see another wave that heads below 2700–2750, we could literally see the market fall hundreds of points in a short period of time, so the risk/reward on a short trade is starting to look very compelling.
Editor, Alpha Wave Trader
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