The ES has been fighting obvious headwinds the last couple of weeks. As discussed last week, prices are right at a long term trendline. Also, the underlying technicals are displaying divergences. And finally, the alternate EW counts all show this to be an area of 4th and 5th wave unwinds. But even with those considerations the ES/SPX staged a very impulsive looking rebound on Friday off an impressive looking downstroke on Thursday. If we continue rallying the bears will once again have been denied their day of glory. Paradoxically these short lived sell offs are setting up a very bearish situation. One would have to assume that the number of market participants inclined to be bearish has been eroded considerably over the last couple of years, but the fact is that a bull market NEEDS bears. Bears provide support in bear trends when they buy to cover their short positions. If there are a lack of short positions to be covered that leaves the market in the hands of bulls in panic - whoosh!! is the result.
So here are the two main alternates. Target areas are noted on the charts.
Alternate #1
Daily
Hourly
Alternate #2
Daily
Hourly
There is a 3rd possibility that seems less likely, and that is that the Nov 7 top labeled as a "b" wave in both the above alternates is actually the top of a 5th wave ending diagonal, with the ensuing sell off and rebound being waves 1 & 2 of a new bear market. However, the rebound off Friday's low has retraced over 80% of the Thursday sell off, so it's much more probable that it will keep on rallying to new highs.
Alternate #3
