ES Morning Update August 17th 2021


The market did indeed run up to the FP on the SPY yesterday and pierced it by a point or so. I remained short even-though it getting scary, which we all know is always the plan anyway as the market tries to shake you out of your position. This morning the futures have given back that entire move and still not showing any signs of turning back up.

We are basically back to the support area from last week, but this time the short term charts are pointing down, not up. They aren't oversold yet either, so the bears have a good chance today to breakthrough support and get something going to the downside for once.

The bulls will want to hold around 4430, which is the next support down from the sideways zone last week around 4450-60 (and the bears are getting close to entering that zone right now). Time is ticking for the bears though as there is a window where odds favor them the most, and this delay of almost a week now is lowering the odd of any huge drop, like a flash crash to 3200 or so. But a drop to 3880 or 3900 is still on the table here. In fact a drop to 3800 would be about a 15% correction from the current all time high.

This would be healthy for the market and allow it to go up to 5400+ by the end of the year (Oscar Carboni's OMNI target). This is very possible, and would fool the most I think if we did this drop to 3800 really, really fast. It would be the wave 4 down, whereas the wave 2 down was the ABC drop last year from Sept 2nd to Oct 30th. It's common to see the wave 2's and 4's alternate both in depth and pattern, so a straight drop (opposite of an ABC) is possible here for this suspected wave 4 down. Like I said though... time is a factor here and it's running out. This month of August is where this drop should happen, so this current pre-market down move needs to get the party started and not allow any further higher highs.

We've entered the 4460-4480 major resistance zone and it needs to hold now. The monthly VIX contact officially expires on the third Wednesday of each month at 8am EST, but for all practical purposes the Tuesday prior to it (today) is what traders really focus on as it's the last day you can trade it. This means we rollover into the September contract tomorrow at the open.

Then there is this Friday for all the stock options and ETF's to end as well. I've covered this before but it's worth discussing again. It's a common pattern for the big boys to sell naked VIX calls to collect the premium, and then they drive it down by simply buying stock and ETF's. That caused the VIX to drop and they get to keep the money from the naked calls they sold if they can keep downward pressure on the VIX into its monthly options expiration. The next common pattern after this is to sell off the market some during the fourth week of the month to spike the VIX up higher, where again they sell naked calls on it and then start buying the market to crush the VIX again.

So if we are truly going to get a flush out drop then today yesterday should have marked the top and today they start the correction down. It shouldn't do too much today but after the VIX contract rolls into the September month tomorrow they can hit the sell button harder on the ES/SPX (and all the markets).

The faster they do this the higher the spike in the VIX as it's a "Fear Index", and fear is greater on a drop that is quicker and shorter in time. For today I'd like to see the 4450-4460 area entered and the market stay there all day without much of any bounces. Then ideally we lose that support into the close or even afterhours or premarket tomorrow with the 4430 support level then being the one the bulls need to hold.

Best case for the bears is after the official 8am EST close of the VIX tomorrow morning they take out that support zone and get the selling real started. Next support would be 4365, then 4224... which if those get taken out we should see a big sell happen with that 3800 very possible. If on the other hand the bulls take it back up today then odds of this happening just keep getting lower and lower. Have a blessed day.

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