I hope everyone had a great long weekend. The futures are set to open lower this morning and have finally broke-down through the 2700 level to hit 2690.25 before bouncing back up to 2700... which is an obvious support area for the bulls. History tells us that the next few days are usually weak as they close out the month of May so possibly we bounce some today and drop again on Wednesday, maybe even Thursday? It's really been hard to figure out the direction over the last several weeks as the market is basically trend-less and just bouncing up and down in a trading zone.
Don't know why they call it a trading zone as I've not been able to trade it. In my opinion it's much easier to be in a trending market where you buy the pullbacks (or if the trend is down you sell the bounces). Back to today... we are now short term oversold on this 2 hour chart of the ES Futures (which suggests a bounce this morning), but the 6 hour (not shown) is just now getting going to the downside and has room to go. So, we could drop again tomorrow fairly easily based on the charts but again we should bounce today. Besides the short term charts being oversold there's also the expected light volume the first day back from a holiday to aid the bulls in getting going back up.
I've added two new falling trendlines that the bulls will see resistance at... one is light green and the other is red. A possibly scenario is that the bulls hit the light green trendline early today and roll back down later in the afternoon. But considering how steep it's falling the bulls might just hit it and pierce through it enough to make it support when they turn back down so they can then bounce off it (like around 2700 again?) to rally back up again before the close with the goal of hitting the red falling trendline sometime tomorrow... where they will likely fail and drop again into the rest of that day.
There's no guarantee that scenario will play out of course but it is a possible one. A second possible scenario would be for the early move back up to fail to get through the falling light green trendline and for the next drop into the second half of today to retest the 2690 low again. That's a more bearish scenario of course but possible never the less. If so, I'd then think we will test the falling blue trendline pointing to about 2680 today. Maybe we don't hit it today but do it tomorrow? Don't know but below it there's a rising light purple trendline pointing to around 2670 today.
This pullback is likely some kind of C wave down from the 2737 high on 6/24, whereas the A down started at 2740 on 5/14, ended at 2700 on 5/15, with the B up lasting from that 5/15 low until the 6/24 high... over a month long. As for breaking down this probably C wave into smaller waves I think we had the 1 down and 2 up last week going into Friday, then this mornings' drop will be the wave 1 down of 3 down, with the bounce currently happening being the wave 2 up of 3 down. That would setup a 3 down of 3 down for later today or tomorrow. This is the most bearish case and requires that this bounce end under the falling light green trendline.
If it's pierced through and turned into support then I'd call the moves down last week the 1 down, 2 up and the 3 down this morning to that 2690 low, with the 4 up now and the 5 down later today or tomorrow to end it all in just 5 waves (likely downside target would be the blue falling trendline). The prior, more bearish count would have 9 waves down in total... a 1 down, 2 up, 1,2,3,4,5 of 3 down, then 4 up and 5 down. Wave counting is just guessing in my view as there's really no way to tell until the move is finished. You just guess based on what you see in the technical analysis of the charts.
If you think they look super bearish you then suspect that some (the wave 3 for sure, and possibly the wave 5) of the waves down will subdivide into smaller wave sets. With 9 waves down I'm guessing that the wave 3 down will subdivide into 5 smaller waves. If it happens like that then I'd look for a 50% retracement of the move up from the 5/3 low of 2591 to occur... or around the horizontal green trendline of support (2655 area). I have to give it low odds though as again, volume should be light this week, and that favors the bulls.
The 5 wave pattern is more likely. I'm thinking the falling green trendline holds the bulls back this morning (and it's a wave 4 up), then we drop into the close today or tomorrow morning to retest the 2680 low (should break it, possibly hit the falling blue trendline) for the final 5th wave down to end the C down Then later in the week we rally strong to take out the falling light green trendline and run for the falling red trendline... where the bulls will make their stand against the bears. From there we'll have to see if another wave count has appeared, as is it a bullish or bearish one? Only time will tell...
