Catching A Breath Before Ramping Higher

May 27, 2020

Tuesday’s session played out as a massive gap up and consolidation. This meant that it allowed the price action and its internals to reset, catch a breath in order to ramp up higher again. It’s been the same structure for the past few weeks once the price action gets too far away from the 4-hour or daily trending support levels if you’ve utilized our key concepts such as 8/20EMA on the important timeframes.

Last night, the price action produced another high-low setup by bouncing off of the 2980s trending support on the Emini S&P500 (ES). In addition, the must-hold 2976 level was never in danger, so the bulls did what they needed to do in order to ramp this bull train back towards 3020/3050 levels. Fairly textbook trending setup given the market context.

The main takeaway remains the same as the ongoing breakout momentum remains great for the bull train so no shorting is allowed unless hedging in a portfolio approach. Gummy bears lost their big fight last week as we warned given that they ran out of time for the reversal setup. This is just the formality taking place with higher lows and higher highs structure given the ongoing upside trend.

What’s next?

Daily closed at 2995 around the 200 day moving average. In addition, the ongoing breakout is now above the 2950~ inflection point zone area that we’ve highlighted on the daily/weekly/monthly charts. Proceed with caution.

Our game plan:

  • We remain bullish as discussed given the past few days’ worth of bull flag and the ongoing acceleration to the upside. In addition, daily 8/20EMA are still trending higher
  • Price action following our 4-hour yellow line projection from yesterday given the grind up
  • When above 2976, bulls remain in full control given the breakout acceleration setup.
  • It’s going to be a decent sized gap up of +27 points or +0.9% vs Tuesday’s closing print as price action formulated another higher lows and higher highs for the ramp towards remaining 3050 target
  • Be mindful of the recent discrepancies between ES vs NQ in terms of strength as tech is re-balancing/consolidating to catch its breath. (tech had led the upside for past 2 months)
  • Those that are holding longs from last week/long weekend/yesterday should be following rules by taking profits as our pre-determined targets of 3000/3020/3050 are being hit left, right and centre. RTH may continue to be consolidation as overnight train rides have been the easy hits
  • Slightly bigger picture wise, be mindful of 78.6% fib retracement of the entire drop located at 3135 if bull train keeps extending higher. Know your timeframes here as long as daily 8/20EMA continues trending
  • As of writing, the ES price action on daily chart is just resting above the 200 day SMA, let’s see how the daily closing prints are located for the next few sessions.
  • Conversely, a massive breakout failure/trap would be considered if price action falls below 2976 and then close below 2950 on a daily closing basis.

See chart reviews and projections on the Emini S&P 500.

Ricky Wen is an analyst at ElliottWaveTrader.net, where he hosts the ES Trade Alerts premium subscription service.

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