ES Morning Update January 29th 2024

Last Thursday and Friday were kind of a “dud” for what I was looking for… meaning they did NOT produce the move up to make me believe the top is in. I was hoping to see some big final squeeze day on Friday that was 100+ points to take out the 5000 level and wipe out anyone thinking of shorting, but it didn’t happen. Instead both days were “pause” days basically, and that leads me to believe we will repeat the common pattern of pulling back a little in front of the coming FOMC meeting this Wednesday.

My target would be 4835-4840 on the ES, which is where the prior highs are at and a falling white trendline from those two highs. This should happen in front of the FOMC, meaning today, tomorrow and maybe the first half of Wednesday. Then the typical wild swings occur when the meeting happens but by the end of the day we close green. I’m not sure about Thursday and Friday but typically they are “non-event” days… meaning they don’t drop much or rally much, and lean toward being positive more often then negative. You might say it’s the markets way of trying to digest what the Fed said before making a stronger move up or down.

Above is the Seasonality Chart for the S&P500, which shows a stronger move up in mid-February then the same Seasonality Chart I posted last week on the DOW, which also showed “Election Years”. When I look at it, and the Seasonality Chart for the VIX as well, I think what we could see is some weakness after this week but only to setup the next and final move up into the week of OPEX.

It might be like we get some kind of wave 1 up after the FOMC this week, then a wave 2 down early next week, and then the 3, 4 and 5 up into the following week. This would align up fairly well with the different Seasonality Charts and would allow a divergence to form on the Weekly chart of the ES, which I’m going to talk about next.

As you can see in the chart above I show the ES upside down and point to the possible final target of 5100-5125 to hit the white trendline. I posted this in the chartroom on Friday as I was wanted to see if the week closed out with a divergence on the MACD’s and RSI. It’s upside down so the divergence will be a negative one when viewing the chart correctly. On the MACD the prior high (low on the chart, as again… it’s upside down) was at 138.234, and for the divergence to form the week would have to close out below that.

But it did NOT and closed higher at 139.875, so there’s NO negative divergence there… bummer. On the RSI the prior high was 70.3183, and we closed out the week at 70.0285, so there was a negative divergence there, but very small. Below is the chart again…

Now you ask… does it have to have a negative divergence on it? I don’t know the answer, but I will say that when I look back in time it usually did produce a negative divergence before it topped and rolled over. So while I had hoped to see it happen last week it did not. This leaves the door open for another higher high over the next 2 weeks in my opinion. Any pullback into the FOMC is likely going to be reversed back up into OPEX with a new all time high as very possible. This is all based on the technicals I see for the weekly chart and the various Seasonality Charts. Now lets look at the daily chart below…

On the daily chart you can see that both the MACD’s and the RSI have negative divergence on them. It’s at least double, possibly triple divergence, which is another reason to think we will pullback this week, and in front of the FOMC is more likely then after it. There’s weakness into the end of January on the Seasonality Charts, and that right into Wednesday the 31st, which is the date of the meeting.

Then strength the first 3-4 days of the month of February and weakness again the second week of the month. But then there’s a lot of strength into mid-February, which all lines up nicely with the need for one more high higher to make negative divergence on the weekly chart (and the daily too I’m sure).

What could I compared the current setup to you ask? Well, when I go back in time the closes then I could see that “might” be similar to today is that last Friday, January the 26th, 2024 would be like January 23rd 2020. Now the two down days on 1/24/20 and 1/27/20 would be like today and tomorrow.

The up day on 1/28/2020 would be like this Wednesday the 31st. And 1/29/2020 and 1/30/2020 would be like this Thursday and Friday. They were kind of “pause” days that just held the rally up from 1/28/2020, and that is a common pattern with the following two days after any FOMC day, so that fits with back then too. And the nasty drop on 1/31/2020 would be like next Monday the 29th, which back then took out the bulls that went long on 1/28/2020 (our FOMC day this Wednesday).

After that was strong rally into the final high on 2/20/2020. While the day count isn’t likely to match I do think that after that last pullback on possibly Monday, February 5th, 2024 we’ll see a week plus of a move up into OPEX to reach the final high like back then on 2/20/2022. Now I am NOT saying that we will drop the same like that crash did back in 2020, but that we’ll top out and drop by some amount. How much I don’t know but we’ll try to figure that out after all this plays out first.

Have a blessed day.