The ES (M June Contract) will likely test the 1635-1636 level in the near-term and this will be another new high to consider shorting. The ES Continuous Futures contract is not trading at all time highs, but it is trading at the highest level since September of 2000, more than a decade ago.
I will be looking for shorts once the ES trades above 1635. I could see the ES trading as high as 1647-1648 before the week is over, but will be looking for signs of selling anywhere in that 1635-1648 range. If I am wrong on a short trade, I will exit quickly. I don't mind taking several small losses in an attempt to hit one trade for a big gain. The key is patience and timing on those shorts. For example, shorting a new high following failed attempts to move higher gives you a better opportunity to use a small stop loss without it getting hit than shorting the middle of a price range.
I do think the markets will make a high inflection point and begin a correction before May is over and it could happen at any time. But like I said earlier, market remains bullish and I continue to prefer buying the dips. Eventually buying dips will stop working, but until it does, I'm a buyer at support.
Additional signs that a May correction is very possible:
- Bonds are currently trading at important support levels and are looking poised to rally. Stocks would likely move in the opposite direction in this case. I expect support to hold on the TLT at 119-120 and for a rally to commence off this support. 119-120 will need to hold over the next week for my bond rally theory to hold.
- This week's sentiment survey shows that bulls are up by 9.8% to 40.2% overall versus 27.4% for bears. This is the first time since the beginning of April that bulls have outnumbered the bears in sentiment. This suggests that the recent short squeeze may be culminating soon.
Levels to watch on the ES (M June 2013 Contract):
Resistance above at: 1636-1637, 1648-1649, 1651-1652
Support below at: 1618-1619, 1611-1612, 1599-1600
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