The Calm Waters of 2800

Micro ES Weekly

It was hard to come away from the action last week without being somewhat bullish. At the same time the late day buying rallies last week seemed like smart money buying the early lows and then selling late in the day to bag holders. I think Joe Granville invented that term.

The decline is now reaching the top of historic resistance; not only the extraordinary triple top formed from October through December 2018, but also the top formed the week of March 16, 2018. This is in addition to the ominous triple tops starting from January 2018.

At this point, the decline has taken out all the gains since April. The longer term bullish case will remain intact down around the 52 week moving average at 2780. Below that 2700-2720 should be formidable resistance. I had an article on SeekingAlpha that discussed how volatility increases near long term moving averages.

I intend to do some research on portfolio allocation; my guess is that risk should have been reduced before now – say from 75% in stock to 50%. Obviously, that point was the end of April this year.

ES Daily

Things haven’t got better since I started writing this. The support at 2790 or so isn’t very convincing, and bag holders don’t like to be fooled six days in a row.

I’m well into researching blue candle sequences and one fun fact is that they are overall the most profitable time to buy over the last 23 years or so, even including the spectacular failures. The idea is to buy the close of the first blue candle and sell the close when it changes color – same strategy as the green candle except for the different color. Note how a buy on the May 2 blue candle close would have made an excellent profit the next day. The current sequence looks quite problematic however.

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