Monday 19th August – ES_F Review

Morning all,

Back at it for another week after a great weekend.

Overnight we’ve seen another break to the upside following a strong day on Friday, now currently trading in the 2910-20 range. Being day traders, we typically take each day as it comes, and following signals on what offers the best probability trades to take on, but we’re also paying attention to the much bigger picture (something we discuss in our education package). In the wider context, the U.S. equity markets are reaching a fork in the road in regard to what the chart is printing in the longer term. Looking at the daily chart on each of the ES, NQ & RUT (Russell 2000), it could be deduced that whilst we’ve had strong daily moves to the upside over the last 10 days, we are in fact witnessing the printing of a bear flag in a daily time-frame.

The fork in the road, for us, is the 2940 level – a meaningful break and close above this level in a daily time-frame, should help confirm that it’s *not* a bear flag and merely a correction on the road higher. We’ve seen a couple of breaks above this level over the last 2 weeks, but they were at the tail end of range extensions, and weren’t strong enough to tempt significant buyers higher, or conversely, make short holders worried to any great degree. Ideally, we’d like to see a break higher, and buyers come in on a re-test of this level from above, thus confirming it as a new support level.

There are however, some other areas on the chart, which give us cause to believe there may in fact be a leg lower, confirming the bear-flag theory. The ‘poor low’ at 2825, represented a double-bottom during Thursday’s cash session, but for those who follow Market Profile closely, you’ll know that poor lows on the profile will often be corrected at some point in the future. Poor lows and highs represent an unfinished auction, meaning there is further business to be done in that area. Typically, market trends finish and reverse with a tail shape (single print) on the market profile, whilst the poor low/high is usually corrected in the near future.

This is market generated information we’ll carry forward whilst making our trading decisions this week. We have some potentially high-volatility events on the docket this week, with FOMC minutes on Wednesday evening (GMT), as well as the Jackson Hole meetings running from Thursday into the weekend (on top of all the Trump vs. China trade war), which may help resolve this current period we’re experiencing. We’ll be keeping a close eye on the correlated equity markets (Nasdaq & Russell 2000) for any clues along the way.

Good luck & happy trading!