Last week I came up with 3 scenarios for ES. Here is a brief summary:
- 1207.50 is rejected & market moves down
- market continues up to 1216.50 and moves down
- market continues up to 1230 and then pulls back to 1207.50 and continues up
As usual, it didn’t play out exactly as I imagined but the process of coming up with these scenarios was still beneficial. I was able to quickly ruled out scenario 1 and that left scenarios 2 & 3. Both are still possible so we have to see how the market reacts around 1207.50. Yesterday that level was tested and there was demand which pushed ES back up. It’s quite normal for ES to bounce up, after all it had dropped from 1224 down to 1206 that’s a 18 pt drop.
My guess is that we’ll see scenario 2 play out. I have two reasons for this: The auction above 1216.50 was relatively weak and the strength came from sellers as yesterday formed a bearish engulfing candlestick on the daily chart (regular trading hours). So I’ll be watching the gap area between 1198 & 1210 very closely. I’m still holding my short position and my average cost is 1207. I expect yesterday’s low to be tested and there if I see strong buying I’ll consider scratching my trade. If I see strong selling I already have targets between 1205 & 98. By 98 I’d be out of half of my position and in a no-risk trade. Due to the risk of scenario 3 playing out (a bounce off the gap area) I want to keep this trade on a tight leash. Plus I’m going away for a long weekend and I don’t want to have a negative trade open while I’m gone.