Last weeek, e-mini futures on the Standard & Poor’s 500 Index (/ES) rebounded strongly and posted its best weekly advance of the year after gapping lower to the $1,998.50 level. The stock rally gained momentum as investors become comfortable with the idea that the Fed’s rate tightening schedule may be slow and halting even if they raise rates at the December meeting. The S&P 500 Index started last week by respecting the 50-day SMA and by Wednesday it was trading above the 200-day SMA.
The recent rally is approaching the psychological $2,100 level and could be forming a bearish ABCD pattern. Point D of the reversal pattern is targeted with the 200.0% Fibonacci expansion level of the B to C leg. The distance from A to B also comes within a few dollars of the potential C to D leg. If valid, we could see price tentatively pullback towards the $2,070 level.
If the bullish reversal pattern is invalidated, bullish momentum could target the 2015 high of $2,134. Further upside could target the $2,142 zone. Longer term upside targets include the $2,180 level.
The trade: Sell S&P 500 index at $2,099 with a stop loss at $2,109 and a take profit at $2,069. The Risk/Reward Ratio is 1:3