The second week of October showcased a vigilant effort from both bulls and bears in realizing their short-term targets/goals. However, in the end, the bulls won the key battles again with the massive bull engulf daily candlestick (2881.75-2954 on the Emini S&P 500) on Thursday. In essence, the market was able to do the standard lower high/daily 20EMA rejection during early week back into the 2880-2900 first target zone, but the bears were unable to sustain that momentum into the second target zone of 2850-2860. Overall, the bulls have now completed the higher lows/double bottom setup, and the earnings week acceleration to the upside seems to be occurring.
The main takeaway from this week is that we are treating bears as mythical creatures, back into extinction mode, until they can resurrect themselves. Price action closed above 2955 on Friday for one session and backtested against the 2994 prior week’s high, signifying a full retracement of the inside week range. For the next few sessions and weeks, treat 2855 vs 2881.75 as a higher lows/double bottom setup on the daily and weekly timeframe, and dips should be buyable when immediate trending supports hold on the micro trending charts such as 1hr/4hr.
What’s next?
Friday closed at 2970.25 on the ES as a top wick bull bar candlestick. The bulls were unable to close at the dead highs, but they closed above the major 2955 level from these past few months. Heading into this week, when above 2941.75, all dips are buyable on the micro and traders should be focused on buying dips only until price proves otherwise. Below 2941.75 creates another potential double top/lower high setup on the lower timeframes that could extend into the daily/weekly timeframe.
Technically speaking, price action is still trading within an inside week range of 2994.5-2855 overall from the September 30th week, and traders must be aware of this if Monday and the early week in general does not gap up or break above this range. Earnings season is ahead of us, so traders must make sure to manage risk exposure/deltas properly in this environment with the potential of another inside week "shake and bake."
Our 4-hour white line projection is king for now with 4-hour red line projection as alternative. Adapt when price proves otherwise. Also keep in mind that the daily chart could be a W-bottom formation already or one more retracement lower, then a blast off towards 3193.75 macro target. Related: Is This The Perfect Environment For Precious Metals Investments?
The weekly chart was an inside week full retracement of the Sept 30th bear candlestick, and the higher lows/double bottom setup is fairly clear on this timeframe. At this point, when above 2881.75, the bulls have the ball, and this is especially true when above 2900/2915.
Overall October Bias and Into Year End/Year 2020:
The multi-monthly chart range is 2775.75- 3029.50 overall and we’re treating this as a bullish consolidation given the macro trend until the odds shift.
For the immediate pathway of the bull train to produce a significant immediate momentum setup into 3193.75 measured move target, then the 2955, 2995, 3029.5 levels are the trigger levels.
Watch closely and adapt if bears shift the odds by breaking back below 2855/2775.75.
Utilize level by level approach and know your timeframes.
October low could very well be in already from the 2855 sticksave, so be aware of this potential.
By Ricky Wen, ElliottWaveTrader.net
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