$ESH16 – March E-Mini S&P (Last:1930.75)

Putting aside all of the burble and breathless speculation in the Rick’s Picks chat room, there is no reason to get all worked up about what is likely to come next. Keep in mind that a simple Hidden Pivot pattern got January’s 271-point plunge very right, including a bottom at 1804 that lay just 13 points from where we’d anticipated. Granted, that’s not as close as we are used to, since we often nail the important highs and lows within a point or two. However, the fact that the plunge overshot the 1817 support did not mean the pivot didn’t ‘work’; rather, it told us that the selling is even more powerful than we might otherwise have surmised, and that the bounce is not destined for greatness even if it manages to terrorize bears.
The overshoot also tells us that this rally will ripen into an excellent shorting opportunity, particularly if it goes on for long enough to convince permabulls that new all-time highs are coming. So how high now? The numbers that I flagged when the bounce began still look compelling. The lower of the two at 1939.75, just six points above the peak of Friday’s quite vicious short-squeeze, bears close watching. An easy move through it on Monday or Tuesday would imply more upside to at least1971.75, which would complete a 0.618 retracement of January’s plunge. For purposes of getting short from either level, however, I’d suggest using camouflage – i.e., a downtrending abc pattern on the 5-minute chart or less. Why camouflage instead of simply shorting at the levels themselves with tight stops? My concern is that these particular retracement benchmarks, both of them all-too-obvious, will be overused by amateurs and the algos, and that they are therefore unlikely to provide the kind of precise stopping power we need to initiate trades advantageously. One more thing to keep in mind as the rally runs its course: Its purpose is not merely to gut, disembowel and dismember shorts, but to get bulls and the dorkwads on CNBC revved up to the point of certitude that new record highs are on their way.

This post was published at Rick Ackerman on January 31, 2016,.


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