Stock Market Bears Close to Nail-in-Coffin Moment

By: Ricky_Wen

The first week of September played out as a picture perfect breakout continuation to our upside targets. If you recall, the final week of August showcased a massive weekly bull engulf candle that basically eclipsed/retraced all the losses of the prior 3 weeks of August for the monthly closing print. This meant that the bears failed, so it’s time for the bulls to launch their counterattack and nail in the coffin of the bears.

During the first week of September, the bulls did just that as they accomplished their ‘hold half and go’ upside continuation setup on Tuesday, holding between the 38.2% and 50% standard fib retracement of the last week of August’s range with the 2889 low on the Emini S&P 500 (ES). On Wednesday night, the bulls proceeded with the decisive breakout above the 2930s-2940s resistance zone, which was the key massive resistance/supply zone of the past 3-4 weeks. The usual feedback loop squeeze setup triggered a vicious cycle of stop-outs and chasers into the 2955 and 2970 continuation targets within minutes.

What’s next?

The main takeaway from this week is that the bears are a critically endangered species and we’re very close to the nail in the coffin moment or point of recognition. For reference, the next Fed day is on Wednesday September 18, and, coincidentally, it’s going to be a quad witching expiration week as well, so these next couple weeks will be the perfect time to make a stand. For now, we could effectively treat bears as extinct as we’re only focusing on one direction until price tells us otherwise. At minimum, until there are a couple decisive closes that are below 2955 and then below 2936.50 to threaten a false breakout pattern with a confirmation below 2889. Then, the macro is looking into the 3193.75 measured move again given the market is so close to all-time highs.

Friday closed at 2983 on the ES, around the dead highs of the week and completing the upside continuation pattern. This offered little to no surprises for those that have been following the on-trend setups. As discussed, doom and gloom sells, but you’ve got to be a realist when things just aren’t working or giving us key clues. For now, the market is just back to what it does best with these V-shaped or W-shaped recoveries just like the past 12 times within the last 5 years. It is what it is, until the music stops...

On our charts, the 4-hour white line projection remains king for now with the red line projection being the alternative route for the next week or two. We're back above the 2955 "sh*t hits the fan level" of July and also riding on top of the daily Bollinger Band highs, signifying powerful bulls are relentless and unwilling to pullback into the backtest area for now.

On the weekly chart there's a picture perfect ‘hold half and go’ continuation pattern playing out since the last week of August. It’s going into week 3 of the pattern, so it’s normal to expect some sort of consolidation for the first half of this week. We're treating the March, June and August 2019 lows as a standard higher lows structure, so that means the August lows is obviously the must hold on any pullback

For reference, 3014.25 was the August monthly high and 2775.75 was the low. It is technically still an inside month for now, but the odds are shifting to favor bulls more and more as price keeps hovering above 2955.

We would need to talk about the route to the 3193.75 measured move again if we get three subsequent daily closing prints above 2955. The longer price sits above 2889 (last week’s high), the higher probability that 3193.75 magnet becomes as the market heads into year end and into year 2020.

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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