The E-Mini S&P 500 has endured a significant sell-off since topping out at 1846 in January. And while the ES has sold off over 100 handles and looks extremely bearish, having channel vision could give you a reason to be a buyer soon.
13-Month Channel
The daily chart of the S&P 500 futures shows price has honored a 13-month trend line that has formed beneath the lows of the rally that has taken place since the beginning of 2012. This lower line has already had four significant touches and four successful reversals over the last 13 months, and a fifth test appears likely at 1730 soon.
By adding a 10% upper band to the trend line, you get a well-defined up trending channel. Price reversed off the upper line of the channel five weeks ago and is now approaching the lower boundary, which could offer support and a potential bounce opportunity.
Confluence of Support
There is additional support in the 1730 area. As a matter of fact, I’ve had a key level at 1730 since October/November, when the level offered great support ahead of new all-time highs. Additionally, 6-month VWAP is at 1729.50, and there is a significant low-volume node (LVN) at 1727.
Overall, this 3-point zone of support could be enough to spark a quick short-covering rally back toward the 1755 and 1764 key levels, with the potential to gain much more. At some point, it’s going to take the bulls reclaiming 1806.75 before new highs are even brought up in a conversation.
Final Word
For now, watch 1727 to 1730 for signs of strength. If buyers defend this zone look for price to rally back toward the breakdown point that triggered Monday’s sell-off – 1764. If the bulls cannot get price to push beyond 1764 to 1781, this could offer an opportunity to sell the rip ahead of the next new low. Otherwise, the bulls have to take out 1806.75 to begin running upside buy stops.
What if 1730 doesn’t hold? In this case, look for price to drop into the next key zone of support, which spans from 1694.75 to 1700. The 1694.75 level is a zone to watch closely, as this level is the 200-day moving average and should see some activity. Below this area of support is a high volume node (HVN) at 1672, which is a zone that has the kind of size on the volume profile that could make it a magnet.
Cheers!
Frank