Yesterday

Let’s recap a little. On Monday the S&P500 mini futures (ES) closed near the resistance that has been holding the market in check since the beginning of April. But the close near the top of the near-term triangle that has formed on the daily chart was not convincing. Yesterday (Tuesday) it reversed again.

The Monday rally occurred on light volume, which indicates the Bulls were not all that enthusiastic. Absent a subsequent follow-through on the rally yesterday (Tuesday) the buyers were going to be cautious.

But there was no follow-through and the buyers’ suspicions were confirmed. Tuesday the ES gapped down at the open, and apart from a brief lunge to close the gap early in the session, went down for the rest of the day.  There was a modest dead-cat bounce near the end of the day as the shorts covered their profits and headed to the bar in celebration, but the market closed at 2084, about 25 points below the previous close. The resistance gets stronger with every failed attempt to penetrate it.

Today

An ascending triangle pattern (from 2033.50, the April low, to 2105, the continuing resistance) has been clearly established on the daily chart. The chances are about 50-50 for a breakout to the upside or the downside from this pattern; while the odds slightly favor the upside it is not clear which way the market will go.

In addition there is a lot “noise” in the intraday action, and we have seen several false breakdowns and breakouts. At this stage we have to wait with such patience as we can muster for the market to give confirmation that the move is real before we rush to get aboard the train.

An upside break-out and close above 2125 on high volume could be sufficient proof that ES intends to go higher to reach its target at 2135-68.75. But if ES moves below 2064.50 and closes there, it could lead to a further decline toward 2025 or lower to 1985. Don’t get married to either side at this stage.                                                                                                                                                                                                                                                                                                                                                           

The major support levels for Wednesday:   2073-71, 2062.50-64.50;
the major resistance levels: 2123.25-21.50, 2129.50-32.50 and none

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