ES Weekend Update: Keep It Simple Stupid Series (Nailed the
coffin shut)
Friday’s session was very similar to the previous week’s Friday Oct 16
session; they were both standard textbook bull train continuation days. What we
mean by this is that the first try 1HR 8EMA and 20EMA were sticksaved by the
bull train as expected during our intraday updates. It provided the classic
risk 3 for 10 bounces on the 1HR 8EMA and 20EMA. For bears, they had a cute
short entry with the 10AM hourly bear reversal bar to the 1HR 20EMA minimum
target which we covered ¼ of the day trade shorts at 2057.00, which was just a
tick above the day session LOD. Pretty standard stuff so let’s fast forward to
the important analysis.
What’s next?
Daily closed at 2065, this is the second consecutive session above the
daily 200SMA with a bit of a top tail candlestick. Also, it closed just a tad
below the 78.6% fib retracement of 2069.16.
We can now conclude that the bears’ coffin has been shut and nailed in.
However, they are still consciously alive, but oxygen is quickly depleting.
Lesson time:
As we’ve been saying in the past; it is a bull train until price proves
otherwise. Bears never got their confirmation and our swing short positions were
entered too aggressively because we calculated that the odds of daily 200SMA
rejection is higher than a full blown squeeze to 2090-2107. We liked the odds
and risk vs reward so we took the trades, but it did not work out. This
is the reason why we have confirmed immediate targets vs unconfirmed immediate
targets as evidenced by the inception of the KISS updates immediate targets win
rate.
Targets: As long as the bull train remains above 2050, the immediate
targets are 2089.5, 2100 and 2107.
(We made a minor mistake in Thursday’s update, the August high is
ES 2107 not 2103.75)
For bears: Monday/early next week needs to get back below 2054 the daily 200SMA
as soon as possible and onto the trending daily 8EMA currently at 2029.62.
(Daily 8EMA will probably become 2035~ when it opens on Sunday 6pm).
Obviously, the market could just consolidate in a tight range and wait
for the Wednesday Oct 28 FOMC announcement as it burns off more premiums in
options and it lets the moving averages catch up.
Roadmap and thoughts:
Generally speaking, from trading various instruments over the years
we’ve noticed that when a retracement on a daily chart closes above/below 78.6%
then a full retracement to the 100% becomes very likely eventually. However, we
do not have the relevant backtest system to prove this in a statistical manner.
Bulls really need to close above 2069.16/2070.
The first try at Daily 20EMA is a BTFD setup
Even if bears manage to reverse next week or within these two weeks;
daily bulls have a first try BTFD setup at daily 20EMA setup just like how
first try hourly 20EMA was a BTFD setup during Friday’s day session. We count
this rally from the 1861 vs 1861.5 hourly bottom to 2065 as Leg 1. The bounce
has never had to retest the daily 20EMA yet, but retested the daily 8EMA 3
times and bounced off it. This means it has been a massive bull squeeze run
that the very first dip to 20EMA should sticksave. However, just because first
try BTFD at daily 20EMA is a great setup ,it does not mean it has to be a daily
chart scale bounce (50-100 points). It could just be an intraday 20-30 points
bounce then retest the daily 20EMA again if bears manage to have that much
conviction.
Weekly bulls/bears: Price has closed above weekly 50SMA. 4 weeks of green.
Monthly bulls/bears: There’s 5 sessions left for the monthly candle closing. August high =
2107 that’s bulls first target. Bears want a top tail and back below the
monthly 8EMA of 2022.39.
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Our Swing Position
- Took losses on all the Nov Monthly OTM Puts (position size was 15% on Thursday)
- Reduced position by 45% in the Dec Monthly ITM Puts (position size was 65% on Thursday)
- Total = 20% swing shorts now (80% swing shorts on Thursday)
