S-T S&P Mo Failure From Lower-Quarter Tilts Intra-Range Directional Scales Higher

February 12, 2018 8:37AM CST

In Thur's Technical Blog we discussed taking a "trading-range approach" on the premise that it's waaaaaay to early to know whether the recent spasm down from 29-Jan's 2879 high is a quick and complete correction ahead of a resumption of the secular bull OR just the first phase of a consolidation period that could span a month or more. This approach required waiting for a bullish divergence in short-term momentum from the lower-quarter of the suspected 2879 - 2529-range detailed in the 240-min chart below.

As a result of late Fri afternoon's recovery above Fri morning's 2619 corrective high, this combination of factors is exactly what the market provided, defining Fri's 2530 low as the end of at least the relapse from 07-Feb's 2727 high and possibly the entire collapse from 29-Jan's 2879 high. The directional jury as to what the current rebound attempt is may be out for a while. But we know with specificity what the market has to do to negate a bullish policy calling for at least a return to the upper-quarter (i.e. > 2790) of the recent range OR a resumption of the secular bull to new highs above 2879: weaken below 2529.
e-mini_s&p_mar18_120min_chart
While the market has articulated a more definitive low around the 2529/30-area, the trading challenge currently is one of "Where does one buy?" now that the market has returned to the middle-half of the 2879 - 2529-range where the risk/reward merits of initiating directional exposure are high. There are two paths:

  1. wait for another corrective relapse to, say, the 2580-area OB where the risk to 2529 is more approachable and/or
  2. establish cautious longs at-the-market (2648) with as tight a stop below a minute corrective low as possible.

Per the second path, a very, very tight corrective exists at 2530. Risking a long from 2648 to "just" 2530 has obvious nominal benefits (i.e. low risk) BUT this comes in direct exchange for whipsaw risk.

If one takes the Path 1 route and the market takes off without getting any longs on, OK, you'll live to trade another day. And the further the market reverts to the middle-half of the broader range, the more aimless whipsaw risk should be expected, presenting a scenario that traders are urged to avoid.
e-mini_s&p_daily_chart
From a long-term perspective it remains clear that it's premature to conclude the past few weeks' relapse as anything but another correction within the secular bull ahead of eventual new highs above 2879. The magnitude of the secular bull requires a commensurately larger-degree peak/reversal-threat process, and this relapse thus far falls grossly shy of such.

These issues considered, traders are advised to first approach setback attempts to the 2580-area OB as corrective buying opportunities with a failure below 2529 required to negate this call and expose a larger-degree correction lower. We anticipate a move to at least the upper-quarter (i.e. above 2790) of the recent 2879 - 25.29-range and possibly/eventually a resumption of the secular bull to new highs above 2879. We will be watchful for a countering bearish divergence in short-term mo from 2790 or higher for another intra-range relapse and a favorable risk/reward scalp from the bear side.

e-mini_s&p_weekly_chart

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