ES Morning Update January 12th 2023

The rally up continued yesterday and will go into the CPI overbought. Since the last CPI produced a “pop and drop” I have to think they won’t repeat it again. Instead I think we’ll get a drop, then a squeeze into the close, and then another pullback on Friday.  How far that pullback goes will give me the clues about the rest of this month.

It should still stay above the rising light blue trendline around 3840 on Friday, and I don’t even think it pulls back that deep… but possible. What would be reasonable to see would be to see a move below 3900, and likely close below it on Friday. But that’s not likely to be the start of the next big drop. Odds still favor another move up next week because of OPEX manipulation.

Put and Call sellers never want to pay out on them as they are kind of like the house in Vegas, who rarely ever loses.  And with next Fridays massive open interest volume at the 4000 level, for both puts and calls, that will keep the market in a chop zone until that day has passed. It’s the AM session so all “they” have to do is pin the SPX at 4000 at the open when the options expire and neither bulls nor bears will get paid. Here’s what I’m talking about…

After that I’ll have to look again at the technicals.  I want to be bearish but I still can’t get the thoughts out of my head about how easy it is to short any lower high here (then the 12/13 high last year).  It was a lot higher on the ES futures with a stop run to 4180, and only 4100.96 on the SPX cash, but regardless of the difference a move up near there is where everyone is just licking their chops to short at.

I said awhile ago that I wasn’t positive about whether or not Small Wave 2 up topped on 12/13 or if we are going to do an ABC up where 4300 is the top.  I remain open to this being possible due to the “surprise factor” that happens when technical setups are too easy for the masses to spot.

Then there’s this technical picture on the daily chart of the ES…

As you can see the RSI could easily continue up higher into the end of this month.  The MACD’s are just now coming up from from oversold, so it’s hard to see a big drop start next week or even the week after into the end of the month. I’m going to remain open-minded here as I don’t want to be caught shorting 4050-4100 with the masses to just get used as fuel for a run up to 4300 into the FOMC meeting on February the 1st.

Here’s the old chart from awhile back with the wave count in case you forgot.  Of course I’m wrong on the dates, but just look at the wave counts.   My point is that we may or may not be finished with the Small Wave 2 up at that 12/13 high.  So I’ll be looking for a move over 4000 (or close) on the close for the SPX (4020 ES) on Friday for me to flip back to looking for an ABC up to 4300 to complete the Small Wave 2 up.  If we are down near 3900 this Friday, and don’t go back up over 3950-3975 next week, (on a closing basis), then I’ll lean toward Small Wave 2 being complete on 12/13.

The line in the sand is around 4000 next week, again… on a closing basis.  If the market can hold that area all of next week then I think it will work off the short term overbought charts and allow a final squeeze up to 4300 into the FOMC on February the 1st.

Now I don’t know which scenario is going to play out.  I just want to remain open as again I can see technicals that support a move to 4300.  This Fridays close will be super important to me for “clues” to which scenario is correct.

Bears will need to push this market back down tomorrow to get it close to 3900 again for me to lean toward the market dropping hard into the FOMC instead of rallying into it.  The big trick today the bulls should want would be a drop early in the day from the CPI and then back up the rest of the day to close near the high.  Then they hold that level on Friday.

Bears will want to see another big move up early in the day after the CPI to fully exhaust the bulls and get the technicals very overbought on the short term.  Then a bigger pullback should happen the rest of the day and into Friday.  Basically a repeat of the previous CPI that did the squeeze to 4180 in the ES before the open.

I’ll be open for either to play out and I’ll trade whatever the market gives me.  I remain super cautious here on shorting too early.  The fake news is pumping the idea that the Fed will pivot at the coming meeting, so you know that’s not going to happen.  Have a blessed day.

Fake pictures… sheesh, does the fake news ever tell the truth?