ES Morning Update May 23rd 2018

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Looks like the bears finally made a stand as the futures are set to open down nicely. But, they've fell right into the 2700 area of support, so I expect a bounce from that area. What this tells me is that we might have topped yesterday and are starting the wave 1 down today, leaving the wave 2 up for late today or tomorrow. If so then we should see a nice setup for a short for that 3rd wave down... probably on Thursday. Volume is still super light as we get closer to the end of the week.

This is of course due to the Memorial day holiday next Monday. It's a perfect time to trap bulls over the long weekend so let's root for a rally here into late Thursday to sucker them in and to put the bears to sleep. If the rally happens and "if" we take out the 2740 area double top then I'd expect that 2750-2755 gap zone to be the upside target. That would throw off the wave count but I'm fine with that as I still think a move up into that level should be an "exhaustion" move and therefore shorted.

If it happens then it should still be the end of the rally up and start the wave 1 down from that level into Friday morning. Then we'd see the wave 2 up into the close Friday leaving the bulls will a smile on their face for the week. This "to me" is the ideal scenario as would shock everyone next Tuesday when the market opens after a long weekend with a nice gap down wave 3 happening. But if we only rally back up to make a lower high tomorrow then the wave 3 down could start on Friday... and traders would spot that move, so it's not the best way to trap bulls in my view. But, the wave 3 down could subdivide (usually does anyway) into 5 smaller waves, whereas the smaller wave 1 down of 3 down starts on Friday and then into the close we see the smaller wave 2 up.

That would setup the smaller wave 3 down of 3 down on Tuesday... another ideal setup for the bears. Clearly there are some interesting possibilities here. And I think that the 2740 area top (or the possible 2755 top yet to come) is the end of a large B wave up from the April 2nd low... which means the next set of waves that fall will be in a large C wave down. Not good if you are a bull.

The bottom line here is that a move down of some power (like 80-100 points in total) is very likely to happen into next week. Whether it's started already is the question I can't answer. If we don't see the recent 2740 area taken out by this Friday then it's already started and is in the early stages. If we see it taken out then the next high (probably to fill that 2755 gap) should be the last high for awhile and the start of the next large move down.