ES Morning Update May 8th 2017

Election is over now and Macron won as expected… so what’s next?  Looks to me like we put in a new all time high in the overnight session of 2403.75 and now fell back to form a sloppy looking bear flag.  So unless the futures can magically turn around today I’d say we are looking at a repeat of the March 1st high with the March 2nd bear flag.  Naturally it won’t look exactly a like but I suspect we’ll drift back down into that 2380-2390 trading zone again instead of turning back up today to make another higher high (or even retest the current new high).

Tomorrow is another story of course as after they pullback some today they could get another boost of energy and make a run back up again I guess.  But today looks like sideways to down as the excitement from the election is over with and there nothing left but overbought charts.  The last minute rip high at the close on Friday looks like that 5th wave I was expecting, which should mark an end to the move up from March 27th as it looks like a nice ABC up with the C starting on the April 17th low.  Inside that C up it’s pretty clean too me… the wave 1 did a smaller abc up to top on 4/19, then wave 2 down into the close that day.  The wave 3 broke-down into 5 smaller waves and ended on 4/26, which started the choppy wave 4th sideways that broke-out late last Friday to make the wave 5 up.

Of course that wave 5 could extend up and Friday might not have ended the larger wave C but with the negative divergence created not only on this 60 minute chart but the 6 hour chart too, I’d have to conclude that odds favor that 5th wave ending, therefore the larger C wave ended too.  There’s negative divergence on the daily chart as well and the weekly charts of both the SPY and SPX Cash Index look weak with their Histogram bars almost back to zero now where they could go either direction.  The weekly came up from about -0.09 to -0.03, and the daily down from about 0.6 to 0.2 currently.

It’s not a perfect science as we know but we are getting close to the middle of May, which is a weak month historically, especially when it’s up early in the first half.  My thinking is we’ll start a slow pullback this week but it will be full of ABC down’s, ABC ups, down’s, ups, etc… to shake out the bulls and bears both but overall the direction should be more down the up.  If we do an ABC down today then I’d look for Tuesday to start the ABC up.  Of course if we just trade sideways all day today then the A down was probably premarket from the new all time high of 2403.75 to the current 2392 low, with the sideways trading making the B wave.  And that will leave the C down for Tuesday morning, which then could (should) be followed by a rebound ABC up… and that’s makes good for the old saying “Turnaround Tuesday”.  One way or other though I expect this bear flag to produce a C down, either today, afterhours or Tuesday morning.

That old trading range of 2380-2390 is going to be tough for the bears to get through, so I’d expect this to take until late this week like Thursday or Friday to break-though it.  Naturally this again all assumes we have topped and I have no way of knowing that for 100% certainty.  I only think the odds favor a top with that squeeze up on Friday to finish the smaller 5th wave, and larger C wave up.  If that wave want’s to extend and make a new higher high it still have low odds of doing it without first allowing this bear flag to play-out and do its’ C wave down.  After that small ABC down completes either by the close today or Tuesday morning the next move up will tell us if the 5th wave ended at the new all time high or if it wants to extend.  I’ll just watch closely for Tuesday’s ABC up to ended below today’s premarket high for my answer.

For today I’ll just be watching closely to see how long this bear flag takes to breakdown and drop into the old trading zone again.  The best opportunity today would be for the futures to rally back up small to maybe as high as 2400 and close there with overbought charts.  That should complete the B wave and allow for the C down into Tuesday morning.  Then I’d exit that short and watch for the ABC back up to happen the rest of that day.  If it completes on Tuesday I’d look to short again.  If not, I’d wait until it ends (may on Wednesday?) and reshort it.  That’s the possibly play I see for today and the next few days… good luck.