Chart of the Day: ES1! Continuation Wedge
When's a wedge a wedge and when is it a pennant formation?
To answer this question:-
#1 The wedge occurred post a trend-break which from experience is usually an ABCD down move at the minimum
#2 The wedge is situated at a key interim support level (note the key SSR level at 2800)
#3 Price action is now clustering below a new SSR level
#4 Price action tried and failed to break through key MA resistance
#5 The intra-day high is a 61.8% retracement of the AB leg
The ES1! broke down because of a breakdown in trade negotiation between the Trump administration and China. Fundamentally speaking, nothing has changed during this consolidation phase to make me think markets are going for a melt-up. So, in my opinion, this is a continuation wedge aka pennant formation.
The Chinese have articulated their red lines which are a function of sovereignty and economic reality. Whereas the Trump administration seems hell-bent on gunboat diplomacy to achieve a Plaza Accord type agreement and is seemingly lumping China in the same vein as Iran in terms of its maximum pressure doctrine. A 90-day reprieve for Huawei does little to soothe the tensions between the US and China. Rhetoric from China suggests a hardening of attitudes reinforcing the view that China view Trump as an untrustworthy negotiating partner and is hunkering down for the long term.
Given the mutual distrust, it would appear a real deal is unlikely and the odds of a cold war type scenario is increasingly likely and the higher likelihood of Trump’s unforced policy errors upsetting an overvalued equity market with weakening fundamentals. The fact that S&P500 companies derive approximately half of their earnings from international markets seem to escape the trade hawks within the Trump administration.
As always , sell when you can. This is just an opinion, do your own homework and this is not a solicitation to trade or otherwise.
For more information on SSR levels, search scripts for Significant Force Support and Resistance.
To answer this question:-
#1 The wedge occurred post a trend-break which from experience is usually an ABCD down move at the minimum
#2 The wedge is situated at a key interim support level (note the key SSR level at 2800)
#3 Price action is now clustering below a new SSR level
#4 Price action tried and failed to break through key MA resistance
#5 The intra-day high is a 61.8% retracement of the AB leg
The ES1! broke down because of a breakdown in trade negotiation between the Trump administration and China. Fundamentally speaking, nothing has changed during this consolidation phase to make me think markets are going for a melt-up. So, in my opinion, this is a continuation wedge aka pennant formation.
The Chinese have articulated their red lines which are a function of sovereignty and economic reality. Whereas the Trump administration seems hell-bent on gunboat diplomacy to achieve a Plaza Accord type agreement and is seemingly lumping China in the same vein as Iran in terms of its maximum pressure doctrine. A 90-day reprieve for Huawei does little to soothe the tensions between the US and China. Rhetoric from China suggests a hardening of attitudes reinforcing the view that China view Trump as an untrustworthy negotiating partner and is hunkering down for the long term.
Given the mutual distrust, it would appear a real deal is unlikely and the odds of a cold war type scenario is increasingly likely and the higher likelihood of Trump’s unforced policy errors upsetting an overvalued equity market with weakening fundamentals. The fact that S&P500 companies derive approximately half of their earnings from international markets seem to escape the trade hawks within the Trump administration.
As always , sell when you can. This is just an opinion, do your own homework and this is not a solicitation to trade or otherwise.
For more information on SSR levels, search scripts for Significant Force Support and Resistance.
