On Friday I posted a short opportunity alert in response to potential topping action in the market. However, price action into Friday's close negated the alert. We had a short-term intra-day volume spike after breaking above the 1322 highs on the ES. Overall volume was relatively light on the day and the volume spike was typical of stops being taken out as the market made new highs. We saw modest selling follow the stops (7 points down ES), but prior resistance at 1320-1322 held as support and the markets rallied back up to make a new high to end the session.
So now I am neutral as I wait to see how the markets begin trading this week.
I will be watching to see if Friday's high (1328.75 ES) will hold as resistance. If so and ES closes the day back below 1320, that will be a nice sign of weakness and we can expect price action to continue down from there. The next level to watch would be the 1299-1301 support.
If Friday's high does not hold as resistance and buying continues, I will be tentatively biased to the long side, but cautious and weary of the always present potential of a sell-off. The longer the rally up, the harder the fall. For this reason you can't be blindly long at the current reaches of this bull market. You can't be blindly short in expectation of a correction either. The trend is still up and this can't be ignored. It is best to wait on the markets to confirm weakness before gaining confidence in the short-side.
With all the above said, warnings for a reversal continue to present themselves. If buying continues, I will be watching 1334 ES as the next potential spot to get short.
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