Not In All-Out Bearish Mode ... Yet

The market followed our script for the most part last week, with strength continuing in the first part of the week before breaking down toward the end of the week. 

As we noted in last weekend's report:  "Breakout possibility in the beginning of the week and breakdown possibility in the latter part before recovering to close just below the 2900 area."

We added:  "Until we take out the 2966 resistance area, this rangebound trading will most likely eventually resolve downward for a lower low below 2775 by around the first week of September."   

What's next? The idea from last week’s roadmap was the correct one -- that the rangebound trading would eventually resolve downward for a lower low below 2775. While the idea was correct, with the indicators going into whipsaw mode on the smaller timeframes, we got whipsawed on our trades as well. 

In review this week, all models are bearish now but the open interest data is toward the neutral side still. And the Scary Guy Put Call Ratio (overall put by call ratio of open interest on the ES) is still hovering around 2.8. Until we get below 2.2 area on this indicator, we cannot really go into all out bearish mode. This can happen in coming days but until it does, bullish outcomes are more likely in the bigger picture.

Short term, though, the most likely outcome is for us to make a low back near the 2730 support area in coming days. Very short term, a test of 2800/2780 support area and then a bounce back up to 2880/90 area would be ideal for us to enter into short positions but we will have to see in real time how that plays out.   

ES Grey Zone areas: The grey zones on the ES 5 min chart below are what I draw in on a discretionary basis - they are supports and resistance areas which the market is most likely to react from. If we test a zone from below, it is likely to be rejected and fall lower to test support zones below. If we test a zone from above, it is likely to take support there and begin a move higher. So these zones can be used for intraday trading and/or as entry points for positioning for swing trades. These zones are drawn in based on what the market has done there previously both on smaller and larger timeframes.

Grey zone support now at 2825-19, then 2779-71. Resistance zone at 2857-65 and then 2893-2900. 

For Monday daily pivot is at 2874. Resistance R1 is at 2914 and R2 at 2977. Support S1 is at 2811 and S2 at 2771. 

All the best to your trading week ahead.

Princely Mathew hosts The Smart Money premium service at ElliottWaveTrader.