Eyeing Dead-Cat Bounce

June 12, 2020

Key to watch for Friday is the market's reaction to the 3085/3100 resistance levels on the Emini S&P 500 (ES), as we’re treating this as a dead-cat bounce.

It’s been a trend week down (Monday-Thursday) thus far, and Friday typically acts as a continuation model for the winning side. Bears must show commitment today by wrapping at the lows/near the lows  Otherwise, they are fearful of another V-shape recovery from the bulls’ feedback loop squeeze setup.

Our game plan is that when below 3085/3100/3125, we are short-term bearish into 3000/2950/2800 targets. This whole setup is technically valid when below 3150, but odds would start to shift if there’s a decisive 1hr/4hr closing print above 3100 that tries to go to the next key level of 3125. We want to play the highest probability portion and adjust when odds do not favor us. 

So we continue to treat 3231.25 as temporary top setup and watch whether this week wraps up as a weekly bear engulf candlestick in order to confirm/deny momentum going into next week.

A decisive break above 3100/3125 would be your first warning signs as 2996.25 would be the temporary bottom for the next few days/weeks.  If above 3150, bears are officially dead in the waters again.

For reference, it’s been an upside acceleration on daily 8EMA since May 18, 2020, and the lower timeframe such as 4hr 8/20EMA has produced a crystal clear trend for on-trend buying opportunities that showcased very little false positives. All bull flag/high level consolidation structures were bought easily and went into fulfilling all immediate targets

During the May 11-15th week, price bottomed out at 2760.25 vs our 2752 pre-determined key support level, we bought the dip at 2765 and the market has bounced way more than 100 points given our initial expectations. When bulls are in charge and bears are trapped market participants, there is no reason to doubt until support actually breaks and confirms some sort of breakout failure.


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