A Lower Low On Two Consecutive Days of Selling Pressure

Feels pretty negative (at least it presents the illusion of negativity). Last year we saw two significant market tops or reversals to the downside (one in January and one in April). In both cases, the initial day of selling was met by responsive buying as a topping pattern formed over a period of days. In the present case, the first significant down day (yesterday) was not met by responsive buying. Instead, we have made a lower low on two consecutive days of selling. Many would argue that this signals a further leg down. I will consider the alternative. First of all, today's close only represents a minor new low. Price is more important than time in this case. As long as the mid 1260s support holds on the ES, my expectation is to see a rally into the close tomorrow (perhaps to 1285). Obviously my opinion will change if the 1265 support does not hold. In that case, the ES will likely be headed for 1250-1255.

Consolidation, Continuation Down or Reversal Back Up?

I am very confident that we will see a move back up to retest the highs, the question is when that will happen?

Option 1: we have a choppy consolidation day today that may see a high up to the 50% retracement of yesterday's sell-off (1285 on the ES) before selling back down to yesterday's low (1275 ES).

Option 2: we continue down to fill the gap from 1/11 (1270 ES) and potentially move as far down as 1265 before finding support. I like this scenario and am a buyer at 1265-1266 in anticipation of a move back above 1290.

Option 3: selling pressure continues and we see an eventual break of the 1265-1270 support and trade down to 1250.

Option 4: the bulls step up and we see a quick reversal back up to recover all of yesterday's losses. I think this is very unlikely to happen today, but just listed it as a possibility.

Levels to watch today on the ES (E-mini S&P futures):
Resistance above at: 1285, 1290, 1295
Support below at: 1273-1274, 1269-1270, 1265, 1260, 1256