The E-Mini S&P 500 [ESH14:CME] reversed off our 1730 zone of support and rallied 60-plus handles to 1795 in just four short sessions. Is 1900 next? Here’s how I see it.
1730 Holds
In last week’s Opening Print (Channel vision at 1730) I wrote: “Watch 1727 to 1730 for signs of strength…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.”
As we now know, the ES gained much more, rallying over 60 handles to 1795, further proving the bull trend remains firmly intact. While the bulls are not completely out of the woods, they are clearly in control, just as they have been after ever other multi-week pullback since late 2012.
As a matter of fact, the recent 3-day rally of 62 handles from the 1732 low accounted for the biggest 3-day rally off a pivot low in over a year, which continues to be in line with the current pattern of each rally being as strong, or stronger, than the last.
Until a significant support level is crossed, this will remain the pattern. Continue to watch 1730, as this is the level that could break the pattern if violated.
1806.75 is the Pivot
While the reversal from 1730 has been impressive, the ES is now approaching a significant zone of resistance that begins at 1794 and ends at 1806.75. Watch 1806.75 very closely, as this level has been a significant level since late November, and the recent sell-off through this level may have trapped some bulls. If this is the case, selling pressure could enter the market should a test of 1806.75 occur, as trapped bulls look to dump position.
It is at this point where the bears could look to defend their short positions, as well, which were initiated during the break through 1806.75 late in January. Again, this would bring sell-side pressure to the market at this level.
The bulls will need to reclaim the 1806.75 key level in order to begin triggering upside buy stops.
So, What’s Next?
Overall, the fact that the ES held the 1730 key level is bullish, and again this points to new highs ahead, likely toward 1900 by April. Short term, look for price to approach upside targets at 1802.50, 1806.75, and 1815.50. Failure to hold above 1786 would signal a likely retracement, with downside targets at 1781.50, 1766.50, and 1764.
A pullback into 1755 to 1764 could offer a solid buy opportunity for swing bulls. However, failure to hold 1755 would imply a retest of the 1732 low…at which point you hold onto your hat.