H&S Activated

Over the weekend, a couple of us made the case for a potential head & shoulders pattern on the ES 4-Hr chart, and we indicated that breaking the fractals at 3,880 might set it off. Today, the market broken those fractals below the four-hour alligator indicator, and - as well - the following observation is to be noted on the daily chart.

ES Futures - Daily - Lost Embedded Stochastic

 

As you can see, the daily slow stochastic lost its embedded status, and price immediately and price went down to contact the 18-day SMA, 'the line in the sand'. This may well set up 'the battle for the 18-day SMA'. I will also note that price overlapped the prior January high on the futures.

On the cash chart, the best pattern we are able to count is that of a potential contracting diagonal. If it completes properly tomorrow, there could be a rebound in prices following it, and then lower lows. Here is the cash chart as we counted it, so far, including the proviso that such a pattern 'must' complete properly to be valid.

From an EW perspective, it almost seems as if there is someone purposely trying to make the waves a difficult as possible to count. I mean this wave starts out with a leading diagonal micro ((A)) wave which was itself a real bear to count. I know why this is happening. The powers that be have a vested interest in not letting anyone else know that a turn is possibly coming. They are trying every strategy possible to hide a 'five-wave-structure'. So be it.

Patience, calm and flexibility are still required as we attempt to detect if there is pattern completion, and a retrace that remains below the all-time-high.

Have a good start to the evening. 

TraderJoe