The ES broke and held the 1074.50-1075.25 PowerZone, which was needed to get a rally going. The ES rallied to the 1084.00-1084.50 PowerZone about 40 minutes into the trading day, and that area set up quick shorting opportunities... There was a 5.75 point drop, a 5.00 point drop, a 4.50 point drop, a 3.50 point drop and then a 2.25 point drop before finally breaking out with 5 minutes left in stock trading.
The market is putting together the overdue oversold rally. We'll see just what the market is made of soon. The pullbacks made higher lows on the way up on Monday, and after having so much trouble getting through that 1084.00-1084.50 PowerZone, it was finally broken in the late trading. That area should act as pretty good support now, if the market is going to continue to be strong.
If that area is not held, then the 1080.50-1081.00 PowerZone will need to be quickly reversed if tested. That is Monday's last hour low area, and is about as far as a pullback should go before buyers get a bit scared and wait for lower prices before getting involved. If that is the case, then a 2-sided day or a flat out reversal will occur if the market spends much time under the last hour lows from Friday. We would need to see the market reverse after testing the 1075.25-1076.00 PowerZone on the ES to get the 2-sided action.
On the upside, as long as the 1084.00-1084.50 PowerZone is held on a pullback, the ES could rally back towards the 1097.50-1098.25 PowerZone on this leg up. That would be a very important area if it is reached. If the rally continues on Tuesday, and that zone is tested and the move stalls out, or 1097.50-1098.25 is rejected, then a reversal could set up a nice sized move on the downside.
Look for early strength to set up a shorting opportunity when the upside stalls/ reverses, especially if the ES reverses from near the 1092.25-1093.25 PowerZone. If that plays out, then the initial support areas will need to hold on a pullback to keep the upside intact. If that area is broken after there has been early strength, then the trends will have rolled over and the short side then should be the path of least resistance.
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