Too Easy…Don't Get Complacent

July 15, 2019

The second week of July continued to follow our expectations.  Early in the week we got the expected backtest pullback into the 2950-2960 trending support zone, and then price formed a 2963.50 low to confirm the low of the week was in on Tuesday July 9. The rest of the week was spent doing the higher lows and higher highs continuation into the 3015/3025 targets as we got another "dead high" (high of week) Friday closing print by the end of the week.

The main takeaway from the second week of July is that it had something for everyone as both directions played out accordingly on the micro charts, and the end result remains the same with the ongoing bull train. Overall, not much has changed in the bigger picture as traders continue to milk the bull train and the bears are still stuck on their "hopium" until actual supports break due to the ongoing trend and odds.

What’s next?

The Emini S&P500 (ES) closed at 3014.25 on Friday, at the dead highs as expected as this year’s Friday stats have been working well due to the explosive trend. Heading into this week, it’s going to be trickier because the 3015/3025 short-term immediate trends are considered all fulfilled. It’s also monthly OPEX week so we need to be nimbler given the usual shenanigans ahead with a "shakefest."

We as traders need to be prepared again both mentally and physically and not get complacent like in October 2018 when a massive weekly + monthly bear engulf appeared as soon as the ES/SPX broke below 2865.  We should have an ongoing "sh*t hits the fan" level as a warning that something is wrong and a quick mean reversion could occur. For now, that ongoing level is 2955, derived from past two weeks due to the the structure of the immediate upside follow through in July versus the massive June monthly bar. 

In Summary

Train is clearly still doing the textbook 1hr 20 ema acceleration grind up structure since Wednesday July 10.

Due to the structure of the current micro, the market is a bit overextended as 3015/3025 targets hit, so stay cautious for early week. Wait for a level-by-level approach to tell us where to hop on the train ride again.

We have to be nimbler this week as it’s monthly OPEX week.

Next key area is located at 3048-3050 for continuation if we see that the train wants to accelerate higher immediately without a backtest

Immediate supports are 3005 and 2992; any on-trend dip is a buy with these defined risk levels.

Ongoing "sh*t hits the fan" level located at 2955. This is the first warning sign of a weekly/monthly bear engulf that we must be preparing ourselves if price action ever gets a repeat of the Oct 2018 mean reversion structure or similar. We must be prepared at all times because there’s we’re seeing a lot of complacency among traders and managers anecdotally. We cannot get complacent just because the bull train has been easy to milk this year.

See chart reviews and projections on the 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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