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Monday, 21 June 2010

A possible rising channel on ES

ES gapped up over the weekend and left the last week's range at 1102 - 1116.5 well behind. It is at 1123.5 ES at the time of writing and it looks as thought we may now have a tradeable rising channel:


One of the prime beneficiaries of the flight to safety trade, along with gold and Yen, was 30 year treasuries, and I was watching last week to see whether it would break the strong rising support trendline of the last few weeks, and it has finally broken it over the weekend: Gold is the last holdout now.


There are a couple of things to note about the ES chart though, mainly that we have been trading in a series of ranges since the recent low, and that those ranges varied in size from 15 to 20 points, with 15 points being the most common size. That's important for two reasons.

Firstly it means that we have not had a serious retracement on ES since this recent rally started, which something to bear in mind. We may not get one until this rally blows out, but until we get one this has the look of a single wave up. This may well be a C wave though., as the recent low was higher than the previous one. If so, a break of support through into a lower range may signal a major interim high.

Secondly, and more short term, in every range so far, ES has returned to unsuccessfully retest the broken upper range trendline, and in the last three ranges since 1070 ES was broken, that broken trendline was retested twice. As we're seven points over the most recent broken range trendline at the time of writing, this doesn't make ES look a compelling long right here, and if we reach 1130 ES again, it would begin to look like a compelling short. On a retest of 1116.5 though, that would look like a low risk long entry.

One caveat though is that the broken trendline has already been retested once overnight, but a second retest looks like a reasonable bet. There has not been a third retest of one of these broken trendlines since the last low, so if you're thinking of going or hedging long here, I'd take the next retest. 

More often than not when there is a gap outside the range of the previous day, it doesn't fill the gap, and looking at ES today I would say that a gap fill seems unlikely today.

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