On Wednesday, May 2, we issued a research post supporting our position that the markets were nearing an apex breakout and that critical support and resistance levels had established within the market.We indicated that volatility is usually quite high throughout these apex breakout moves with the potential for a “wash-out” price rotation in the works.In other words, as these apex breakouts happen, price can sometimes, falsely, break to one side or the other and rotate very quickly to the other side – creating what we call a “wash-out” price reversal.
Closing out this week, prices broke lower on Thursday, May 3, and reversed sharply before the end of the trading session to create a “wash-out” low formation which is indicative of a price bottom.We felt strongly that our ADL price modeling system's analysis as well as this bottom formation are strong evidence that the US majors will enter a new upside price trend very quickly.
Last week we entered three trades to take advantage of this increased volatility, fear and large price swing in the markets. We took partial profits of 4% on one, the other is up over 7%, and the third is on the verge of a big move of 20% or more.
In this post we want to share with the markets general direction because there are some hot sectors and hot commodities that should have incredible moves over the next several weeks.
SP500 Channel, Washout Low & Breakout
As of Wednesday, May 2, there were two levels we were watching: support at 2623 and resistance at 2658.The triple top formation in the ES was indicative of major resistance near 2658.We didn't believe this range will hold for very long as our ADL price modeling system was predicting an upside price breakout.
SP500 Pennant Formation
This ES Weekly chart clearly shows the pennant formation, lower price support channels and the two intermediate support and resistance levels drawn on the price chart, above.Our interpretation of the current market setup is that price may continue to rotate in somewhat violent modes until the breakout is completed.The breakout price move we are expecting could happen any minute between now and the end of next week.We believe this is the most likely time span for price to attempt this breakout move.
