[Click on the picture above to see why the current set-up in the E-mini S&P 500 futures is so explosive and learn how to trade an ABC pattern.]
We have been following developments in the E-mini S&P 500 futures closely over the past few weeks, because the technical picture has been quite interesting now that a monthly sell pivot has been confirmed a few months ago.
Prices squeezed higher last week into the sell zone that I have been discussing between 2950–2990. Everything is now in place for a potential ABC sell signal to be confirmed on a close below the 2930–2940 area. If we also see a daily sell pivot confirmed, my confidence levels will go up that we may be on the cusp of a sizeable sell off towards 2700.
The only fly in the ointment is that we saw a weekly buy pivot confirmed last week and I am usually pretty wary of trading against the weekly trend. Now that the weekly buy pivot has been confirmed there should be good support around the buy zone of the weekly buy pivot which is between 2900–2915. Even if prices sold off this week, we could see prices bounce from that area and race higher. Therefore, any trading that I would do on the short side based on the daily sell pivot would see my initial targets around the buy zone of the weekly buy pivot.
The reason I say that is to get you thinking about trade management. You should always map out where the buying and selling forces are above and below the market and then set your targets and stop-loss levels accordingly.
The situation is now quite explosive because a breakout to new all-time highs could see the resumption of the strong uptrend after a few years of range trading. I will not keep any short positions if the market heads above the 3050–3100 area, that’s for sure. But with the monthly sell pivot now in place there is still the chance that we are witnessing a short squeeze that will ultimately fail before new all-time highs are reached. If that is the case then the risk/reward in getting short around here is very compelling, because you don’t need to risk too much to find out and the size of the fall that will occur if the 200-day moving average is broken will be quite large.
Editor, Alpha Wave Trader
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