The year 2020 started with a continuation of the rally that began the year before in January of 2019. The 2nd half of 2019 shorts were caught and used to fuel the market into new highs. To start the new year, the market continued on its gains, managing to hold above its 6-month volatility window for exactly 6 days which was the time needed to establish a bullish 6-month bias, and the rug was pulled from underneath, fueled by the fear and pandemic that came to the forefront. As noted on February 20th, 2020, “if one is a contrarian, this is what you’d want to get everyone on the bid to sell into.”
$ES_F 02/20/20 was the 6th daily close > upper vol window, establishing a bullish 6M Bias. This forced buyers >3360, and forces buyers to defend pullbacks. If one is a contrarian, this is what you'd want to get everyone on the bid to sell into. pic.twitter.com/ufWhQswlma
— Chicagostock🌐 (@Chicagostock) February 20, 2020
What happened:
The move was sparked by the news of the pandemic, but fueled by buyers being caught on the wrong side.
Fast forward to this year…
The market began the year by continuing on last year’s rally. Overcoming the January 6 month Volatility Window at 3800, to establish a bullish 6-month bias, and expanding higher into the end of the first half. The 2nd half of the year, July, started with the market making a new high, before correcting down to 4224, which was followed with a bounce-back into a new high. For the 2nd half of the year, 5 daily closes above the Volatility Window of 4382 are needed to establish a bullish 6-month bias. The market managed to do this on Thursday, July 29th, 2021. Just as the bias was set, the market is falling back below the window. Is this setting a trap? The key to the bias is that not only it lures in buyers above the window, but forces buyers to now defend pullbacks to prevent the bias from being reversed. Again if one wants the market to go in the opposite direction, they want everyone caught off guard and on the wrong side, this is what makes the biggest moves as they're unexpected. We will see if history will repeat itself as they begin talking about locking down the country again. By setting the bull bias, pressure is on buyers to defend pullbacks to maintain it and prevent a reversal. A reversal takes place with 5 daily closes below the reversal window at 4302. Doing so, would reverse the 6-month bull bias, have longs caught on the wrong side which can be used to expand the market lower. So long as the reversal window holds, buyers have control and will need to overcome the upper Volatility Window at 4382 again in an attempt to continue expanding higher.
