Mid-Day Update – 07/20/2021

Looking at the above two-hour candle chart of the S&P 500 Index Futures with 24-Hour Data, you will see that the market has made a symmetrical ABC correction back up to the 5 and 21-day EMAs, also the roundie at 4300 and the measured move off this morning’s break-up from the ON trading range. I rode the Gap and Go trade with two contracts, scaling out of them for almost 59 points. As mentioned yesterday, this volatility can be very conducive to day-trading.

The question now is what to do next. These two-step moves are the hallmark of corrective, as opposed to trending action. If the rally continues higher to maybe a 1.618 move off the “A” to “B” portion of the leg projected from the “B” dip, thereby destructing the symmetry, we can have more confidence in a trend reversal. You can learn more about this by studying Elliott Wave or other materials on corrections.

So this is a critical juncture. I postulated it could take several days to do this, but the market is moving rapidly back to this important level. This could turn out to be a good short, but I would need some confirmation that a turn back down is under way. Internals are very positive today, so an immediate reversal may not be in the cards. I simply want you to be aware of the issue.

When you have a large bar such as the one on the two-hour chart above, it is not easy to be assured that the market is turning down again until the low of that bar is taken out. That would be a poor location to be short from. So I will be watching the lower time frame charts for a turn. The point to get is the importance of the juncture.

Whether or not the intermediate trend has turned down, we could bump along this area until we turn back over for a retest. Incidentally, I forgot to mention that the market also had support yesterday from the WEM low at 4245, so keep that level in mind.