The ES is in a strong downtrend which does not appear over, although a bounce in the very near future would not be a surprise. From an EW standpoint, the selling that started at the close last Tuesday looks like three waves through EOD Friday, with the 3rd wave possibly done or very close to done. This would portend a wave 4 & 5 before a more serious bounce or change of trend. Momentum indicators are oversold on an intraday basis but not quite oversold on a longer term time frame which supports the EW analysis.
60 minute bars
5 minute bars
Two alternate counts seem the most likely at this point.
Alternate #1
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Alternate #1 has to be the preferred count right now given the precarious situation in Europe and the evidence of another looming recession in the U.S. The ES/SPX and other U.S. equity indexes are certainly supporting this alternate with the impulsive looking wave structures that have been expressing themselves since the top of late March. If this alternate plays out the ES should be steady down for some months to come with an eventual low around the ES 1000 area.
The current count here has the ES closing in on the low of Minor W3 (red) of Intermediate W1 (purple). The bear move should have 5 Intermediate waves, so the ES is in the relatively early stages of the sell off. If this is correct, there will be a Minor W4 correction followed by Minor W5 down before a more significant bounce can be expected.
Alternate #2
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Alternate #2 says that the ES is in a large ending diagonal structure that commenced with the low at 1068.00 early last October. An ending diagonal is a 5 wave structure where wave 4 overlaps the top of wave 1, which has occurred on May 21 and then again on Friday last week. Each wave should be a three legged structure, and that is evident in all 4 waves so far. Also, there is a nice piece of symmetry in this count: Intermediate W2 (purple) was a double zig-zag and Intermediate W4 also appears to be a double zig-zag. If the current count for this alternate is correct then the ES is in the last stages of Intermediate W4. Target area for the W4 low is in the mid-1200's.
This ending diagonal would be the last move in the longer term structure dating back to the post-crash lows of March '09. As such it's conclusion would portend some pretty serious bear market action.
So the major difference between Alternate #1 and #2 is a matter of timing, they both would result in major damage to equity prices, but Alternate #1 says "happening now" and Alternate #2 says "happening a few months down the road".
ES 1269
ES 1269 has a good possibility of providing significant short term (1 - 2 weeks) support to prices. First, it is the point at which Minute W4 (green) = Minute W1 in Alternate #1. Second, it shows up as a "volume hole" in a 6 month volume profile study of the ES.
Volume holes are price levels where noticeably less contracts have been traded during the time frame of the study. As such they provide an indication of a price level where significant support/resistance may be located - if relatively less contracts have been getting traded at a certain price point it follows that prices have been bouncing off that price point. As with any market analysis tool this is not a 100% deal, notice how prices sliced down through an apparent volume hole at 1293.75 on Friday (although there was a small hesitation at that level).
Gold
Gold looks very likely to have finally established the bottom to the the Major Wave 4 correction to it's bull market run that started in Oct '08. If so it's in the very early stages of Major W5 of that run and thus should match the Major W3 high of 1923.70 at a minimum. In commodities the 5th wave of a sequence is usually the strongest as opposed to equities where the 3rd wave is expected to have the greatest strength. Thus there's every possibility that gold will exceed the $1060 gain of Major W3, which would give a potential target of $2600/oz or better. Whoa Nelly!!!
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If gold is in fact embarking on a some serious price appreciation that would support the case for the ES Alternate #1. Severe equity bear market = fear = higher demand for gold.
