Potent Selling, Nearing Lower End Of This Week’s 3650 Demand Zone

Context section:

  • Price action remained trending down below daily since the mid Jan 2022 breakdown of ES 4650s. ES has not stayed above daily 20EMA for more than 30 sessions this year
  • ES was down 7 weeks in a row from April 4th to May 20th. A high of 4580 into a temp low of 3807
  • If you recall, sentiment + percentage of stocks under 20 day moving average were at rock bottom extremes before the 10% + deadcat bounce from 3807 low to 4202 high        (May 20th to May 31st)
  • Multi-day consolidation during May 31st-June 9th        inside a 4070-4180s range
  • A decisive breakdown below 4070 occurred on Thursday June 9th, opened up downside range into 3985-3950 and much lower
  • Price dropped 9% in 3 sessions without looking back (4140s->3750s)
  • As of writing, potential selling during overnight price action from 3830s to 3690s. All gains from FOMC have been retraced and ES made lower lows. (NQ not yet) 

Current parameters:

  • Daily 20EMA = 3960s
  • 4hr 20EMA = 3800s

Short-term trend and intermediate trend remains firmly down until price action could have at least 2 daily closing prints above daily 20EMA to switch things to neutral. Intraday price action has been trending below 4hr 20EMA, indicating sellers remain in control defending against deadcat bounces

Wednesday FOMC explored both sides of the past two days’ range high and range low with minor overshoots to key levels. Daily range was 3843-3723.5.  EOD settled at 3790s, meaning buyers failed to finish their job. (they needed to close above 3820 based on prior report’s parameter)

Overnight session -2% and market participants are trapped as we head into today’s RTH open.

Key ideas for June 16th RTH:

  • Bearish bias, using 3690-3700 as a pivot zone to gauge momentum/spot trades
  • If 3690-3700 does not hold after RTH open, expect gap down and go trend day towards 3650. This number represents the low end of our weekly demand zone 3720-3650 that we’ve been tracking
  • If 3690-3700 keeps holding, expect a deadcat bounce back into 3750/3785 area for some two way auction/balance
  • Focus on entering vs. good trade locations today given the large gap down sentiment, intraday trades are mostly about being able to flip flop and adapt with the flow. Similar to yesterday how we played FOMC

Bigger picture:

Treating 4200s as June monthly high at the moment and price action currently testing this year’s low /May monthly low. Needless to say, sellers are the ones that remain in full control because of the daily 20EMA downtrend + strong short-term selling pressure trending below 4hr 20EMA. 

We’ve been expecting month of June to be trading within May’s monthly range of 4303-3807.5. However, with the 4200s decisive rejection followed by the steep breakdown from June 9th 4070 into a current Sunday night low of 3830s. This previous opinion is heavily challenged and was confirmed on Monday June 13th with the selling continuation below 3800s. (the previous yearly +May month low)

If price action stays this weak, the ongoing risk and most logical outcome is further downside during rest of June due to the weak price action structure + overall market context. The overall risk here is opening to the next big demand zone around 3720-3650. Know your timeframes.

For intermediate buyers to save this and turn the ship around, they would need an immediate reverse into 3820/3900, followed by a couple closes above the trending daily 20EMA resistance and especially where the breakdown acceleration originated from June 7th at 4070. (structure would become a big double bottom/sticksave off vs the 3720-3650 demand zone)

Conversely, if this week’s price action doesn’t stabilize, then we have no concrete support until the next weekly/monthly demand zone sitting at 3550-3500. That zone represents the beginning stage of the Aug-Nov 2020. 3550-3500 basing/breakout zone was the start of the +37% rally into 4800 all time highs.

Ricky Wen is an analyst at ElliottWaveTrader.net, where he writes a nightly market column and hosts the ES Trade Alerts premium subscription service.