ES1!/SPX/SPY: Tomorrow & End of Week for CME_MINI:ES1! by Steversteves

Haven’t done an ES1! post this week. So going to share my thoughts. My emphasis here will be on SPX and ES1! because they are, I guess let’s say, the most interesting?

I see a lot of division here. A lot of people pushing the bullish narrative vehemently, same with the bearish narrative. I will be honest, I am not sure and am incredibly anxious about the uncertainty. I should have called myself the anxious trader, because its me. Being a day trader is hard. Being a day trader with GAD is even more difficult. Story of my life haha.

I played today to the short side because the probabilities were convincing on the bearishness, at least for tech ( QQQ ). It was a very painful play, let me tell you. We did get my TP, but it was just a slow and painful grind. Lots of optimism and I can understand where the bullish conviction is coming from for some people. It really does seem like the market is behaving in a very bullish and optimistic manner.

That said, I think it would be wise to unsubscribe to any theory of thought here. I too got sucked into this whole bullish narrative and I think its still kind of premature.

But I am not going to talk about my opinions, and just want to objectively discuss what I am seeing and what the math is saying.

Observations:

So, for ES1! we do have bullish divergence showing up on the VIX oscillator on the 15 minute chart on the 75 lookback period. Interestingly, the last time we had this divergence, paradoxically, this is what happened:

SPY’s high prob target for the week was around 406 at 4:4, meaning of 4 identical instances, it hit that projected target 100% of the time.
Its bullish targets were 0:4, meaning of those identical instances, it hit the bullish targets 0% of the time.
We hit those bullish targets and broke into that range. Now by my own rules this invalidates further swing plays because it signals that we are making a new historical instance that was not accounted for. But, my error and my bad was presenting this as definitive or “the be all end all” for the bull market and a bull thesis. Its not. It simply means that SPY did something new this week that is hasn’t done before. It doesn’t negate the fact that 4:4 times in history it hit that other target. However, because this is a historical anomaly for the S&P , it does cloud things. Technically, if we look back at those 4 instances, it would give us a 0% chance of hitting 406. Because historically, we never hit the bull targets. But, if we look at those dates more closely (the 4 instances in history), you can actual attribute the outlier instance to an event. In this case, a catalyst (fed speech). There were no catalysts that I can see from these other 4 instances. Now, my math models are not so sophisticated as to be able to pull up all historical catalysts. The most I can control for is FOMC meetings, and that’s it. So I have to take this as a potential explanation for the outlier week we have seen and understand that, historically, when probabilities are defied, things tend to catch up. We haven’t had a week where the high prob targets were not hit for some time on SPY , but we recently saw this happen with BA. Last week, I posted the high prob range, BA circumvented it, only to come crashing back down into that high prob range the following week.

I am sorry that I pushed my own narrative and lost sight of my traditionally objective approach to the market. I watched my post FOMC talk video and it was extremely biased and I was pushing my own narrative. I always try to avoid this, but it gets hard to be objective sometimes, especially when stocks and the market seemingly defy objective data. Its natural human instincts to want to rationalize away behaviour by ascribing meaning that is likely not there. And absolutely there was a rational explanation this week, there was a catalyst that the model could not possibly have accounted for (Fed talk), but it seems that the market is correcting back to its normal trajectory after the effects of this catalyst have dissipated.

Thus, I just want to emphasize:

a) I am sorry for pushing a narrative that technically went against the objective data and

b) We really need to be careful here. This is…… suspish.

So what’s going on?

Great question. I overlooked many things this week, lol. If you remember, one of the things I have said is that IWM tends to be super transparent about its true intentions. IWM also serves as a canary in the coal mine. It went right for its high prob zone, which is great. But not only that, it actually is telling us something very interesting. And I can show you what its telling us:

This is IWM’s swing range. You will notice that it is suspiciously avoiding the swing high range. This is a fairly bearish indication, and I am a little frustrated I forgot to reference this, because this generally foreshadows some pain.

It is not definitive, but it is persuasive.

But then we have the probabilities. So let’s talk about those.

Probabilities for tomorrow:

So the high prob ranges are labelled in the chart, 1 is the high prob, 2 is the second highest prob. The ranges with no numbers have absent probability (not at all likely).

Probability on SPX is actually … its actually fairly bearish . Not like insanely bearish , like range defying bearishness, but like… fairly bearish . There is a VERY notable preference for the downside.

The immediate downside targets are:

Bear:

1. 4115 (Pretty likely)

2. 4099 (Kinda likely)

3. 4083 (Absent)

Bull:

1. 4134 (Sorta likely)

2. 4147 (Absent)

3. 4161 (Absent)

For the intra-day assessment, I really want to share this with you so you can make your own judgement (on SPX ).

On the momentum scale:

The ratio of overall bullishness tomorrow is 6:59

The ratio of overall bearishness tomorrow 35:59

On the technical scale:

The ratio of overall bullishness tomorrow is 2:16

The ratio of overall bearishness tomorrow 5:16

So what does it mean?

To me, its strikes me as range bound. If we look at the SPX chart below we can see that, the high prob target would bring us to the bottom of this pennant /triangle range and leave room for really a break up:

So tomorrow, if it is indeed slightly bearish to range boundness, it really could just be legit pullback. It really depends on what happens with that triangle on SPY / ES1! / SPX .

As of right now I am neutral. I have no broader bias. My intra-day bias for tomorrow is short, looking for that 4099 range on SPX , or close to it.

ES1! and YM1! have taken out their 99% targets (yellow line on the chart). I did play to that, but otherwise I am waiting.

Also remember jobless claims released in the morning, but lately jobs data has been a non-event. It hasn’t really been moving the market all that much, so I wouldn’t really count on any big response. But maybe!

Again I want to emphasize, its too early to subscribe to any overall thesis. We really should wait to see how the market reacts to this pennant thing that the S&P is forming on SPY / ES1! and SPX .

Safe trades everyone!