Tuesday the stock market was hit by increasing concerns that the stress tests for European banks Helped to conceal the true fiscal condition of the euro zone. Both the SPX and ES gave back a small portion of the gains made in the past three days. The ES closed down 12.25 points.
The short-term is overbought, and a pullback to test the break-out area is necessary to smooth out the overbought condition. Today we may see a continuation low move early in the morning if ES fails to hold above the 1087.50 line in overnight trading. 1076.75 is the key line for today. If it holds, the C top target will remain intact. A move under 1070 will trigger the declining wave 3 again.
In fundamental terms the past rally had no reason and support. In terms of technical analysis, the price rallied from an oversold condition. Now ES moves into overbought territory. Choppy and unstable moves should be expected, as we approach rollover day and the 10th anniversary of the 911 event.
Trading strategy for Wednesday
ESU0 Intraday – 60 minute bars
On the 60min chart, ES gaped down at the open and held the price down until the close. Significantly, it failed to fill the gap during the session. Now that gap becomes important.
As long as it is unfilled, the odds will favor the selling side. If we see a break under 1086.25, it is likely for ES to dip into 1083 or lower to 1076.50-1077 range (long entry).
On a move above 1099.50, it is possible for the price to pop up to 1103.50-1107.50 (short entry) or higher up to 1109.25-1110.50 (short entry).
