Market Plays Into Our Path, Rallying Into OPEX

Over the last two weeks we were calling for a low on WWW -- i.e., the Wednesday of the week before options expiration week -- and a move higher from there into OPEX. This is pretty much what happened in the market.

What's next?

Even though the market played out as our path over the last two weeks outlined, we were not long for this last portion of the rally because the micro1 indicator of NYHL1M has been on sell since 3077 ES. The micro1 indicator measures momentum of the NYHL1M indicator - i.e., momentum of the cumulative new highs/new lows on a 1 month basis. The micro1 indicator being on sell means that momentum is absent on the internal measures we track. But for now price is drifting up without strong support from internals. Generally when this happens, it is a warning sign for a reset in the market very soon in price. Or the momentum in internals catches up and joins price. I think here, the former is what happens. And my expectation is that a correction happens in price over the next 2-3 weeks. 

But regardless of what my expectation is, if micro1 joins the other indicators also to the upside, we will also get back into a long position. Because apart from micro1, everything else we track is on a buy. NYHL, NYHL1M, micro2 and the secret indicator combo all remain on buys. Open interest data also has been bullish at least over the last week or so. And above all, as I have been stressing upon over last several months, price is king -- as this is what matters to our bottom line -- and this is still going higher for now. So if we do get a dip over the next few weeks, it should be another opportunity to get long the market for a year end rally. But we will use the micro1 indicator to tell us when to get on board for this - assuming that that is indeed what the market has in store for us.  

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 support 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 resistance at 3116-3120 (we are in this one now) and then at 3135-39. Support is at 3102-3097, 3078-73 and then 3067-63.  

Daily pivot is at 3111.5. Resistance R1 is at 3127 and R2 at 3135. Support S1 is at 3103 and S2 at 3087.5. 

All the best to your trading week ahead.