The E-Mini S&P 400 was rejected at stern resistance for the second consecutive session today, which forecasts additional selling pressure ahead. Here’s why..
Strong Resistance
The daily chart of the E-Mini S&P 400 shows price was firmly rejected at the 1,005 resistance level today, leaving a very bearish wick above resistance before closing near two-day lows.
As a matter of fact, the daily bar candle formation that developed as a result of today’s trading was the engulfing (or outside day) candlestick, which tends to pinpoint key reversal points in the charts.
The fact that this candle formation occurred at this resistance level is indicative of a potential multi-day decline ahead. It’s also not a coincidence that each major E-Mini also formed this highly bearish candlestick.
The 1,005 resistance level has been in play since late September, but also dates back to the March to May highs, as well. Therefore, this “line in the sand” is one to continue to watch.
Unchanged Value Setup
The 15-minute chart shows the EMD has also formed an Unchanged Value relationship. I don’t often mention this relationship, but I do introduce the setup in my book Secrets of a Pivot Boss.
Basically, this relationship develops when the upcoming day’s value area is virtually unchanged from the prior session’s value area. This relationship indicates that current value is holding steady and that buyers and sellers are happy with current value.
However, this pattern also forecasts a potential breakout opportunity ahead, since market participants will eventually seek to push price to new value. That is, the market is happy with current value, but this phase won’t last long and will usually lead to a breakout opportunity.
Like the Inside Value relationship, we’ll want to see if price can open Tuesday’s session with a gap out of range and value. If a gap does indeed occur, and the market maintains the integrity of the gap after the first 15 minutes, we could see a nice unidirectional trend day in the first two hours of the sessions.
Bear Targets
The current average 5-day range is 35.2 points. If we assume that Monday’s high price of 1007.6 remains as the high, we can subtract the 35.2 MDR from the high to get a forecasted 5-day range that spans from 972.4 to 1007.6.
Furthermore, we can subtract 75% of the 35.2 MDR from the 1007.6 high to forecast a much higher probability target, which in this case is 981.2. As is turns out, this target has a 70% chance of being reached.
If the EMD opens the session with a violation through three-day lows at 992.20, then look for price to drop back toward the 981.2 level by the end of the week, or sooner. Also, look to scale out of your position at the nearest VPOC (Virgin Point of Control) at 988.3.
Let’s see how this one plays out!
Cheers!
Frank Ochoa
PivotBoss | Own the Market
Follow us on Twitter: http://twitter.com/PivotBoss
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