$ES_F : 1565 - 1545 : Market Recap

Finally a success for a bears.

Important top formed at 1593. Trend change in making.

After a feeble low volume attempt to shake new shorts, the market could not entice new buyers and finally we have a good confirmed short set-up immediately in the vicinity of a top. The following are supporting the top formation and possible trend change.

  • The rally from 1533 to 1593 was a straight line up move, followed by equally strong move in opposite direction with increasing volume. These capitulation tops mark important turning points for the markets. 
  • The short set-up has held on the move down and bears have shown a follow through.
  • The macro economic climates has been screaming for a correction/pause in stock market rally for a long time. Any other indicators (bonds, metals, china, emerging markets) have not been supportive of the rally.
If the current move has strength, the first target would be 1500 - 1450 area. And if the bears have legs, a trend change on longer term time frame could develop requiring a new analysis. Here is a 5 minute chart of today's day session.

I came in the day cautiously bearish as per this trade plan. The markets were showing a 10 point gap down and it usually pays to trade in the direction of the gap in such cases. After first test of VWAP, market failed to break above the opening range high. I went short at 1455 (first red arrow) and the trade worked pretty much from start and I managed to exit at 1546 (second green arrow) near my expected day session low. If we were in confirmed bear market I would have kept my position bit longer but current markets require caution till the trend change is confirmed. The trades are mentioned in the comments here. Market continued to break lower while I called it a day. As I come back to complete this post, I see that markets are reacted up from Monday's lows and looks like it would test VWAP before turning down again.

Today marks a confirmed short set-up provided markets close near the lows of the day below 1548. There is still nearly 2 hours left in the trading day and anything can happen. I am however taking my eyes off the markets for a while. A move towards 1500-1450 is likely from current levels.

My stock portfolio is on short side with some minor long added on defensive stocks.