Last week Jerome Powell and the FED raised interest rates by 0.25%. This was the first rate hike in over four years. What came next was a rather large bullish rally up to the mid 4400's on the ES/MES. The big question now is, what will happen next? Let's walk through a 2 different scenarios.
#1: Head & Shoulders on the Weekly Chart.
If you take a look at the ES/MES weekly chart you will see last week ( 03-14 to 03-19-22) produced a very large bullish candle. What we can see just above that candle is the 4500 level. This level held as resistance back in 2020 for a month and then was turned into support and held for about 2 months before being broken by the big sell off in January.
During the last week of January and the First week of February the 4500 level was turned back into resistance. Now why is this even important? As this is being written( 03/21/2022) price has been held under the 4500 level all day long. Taking a look at the chart below we can see in the past, the 4500 level has been both support and or resistance.
Now the question is, is this simply a dead cat bounce after some good news and price will continue to hold under the current resistance level of 4500 or can price actually turn 4500 into support? The good news is, price broke out of the descending channel. The bad news is, price is currently back at our mean and could be a great spot to short back down to the 4100 level.
In regards to the weekly chart what do you think could happen?
#2: Daily Chart Pull back
As mentioned above price has broken out of the descending channel, now what we can see is a gap from our mean. Our mean is the blue line in the image below. Now price is only 50 or so points away from our major resistance level of 4500 and looking a bit extended. Remember the old saying " buy low, sell high"? Well buying right now "might" be buying high.
A potentially scenario is to wait for a Higher Low near the 4300 level. If we look to the left on our ES/MES chart we can see that 4300 has been a turning point in the past. Additionally 4300 held as resistance from 03/08/2022 to 03/18/2022. \
With price looking a bit extended it might be fair to say price could easily drop down to 4300 and create a Higher Low.
What do you think could happen on the daily time frame?
Above are two scenarios that could easily play out in the coming days or weeks. Price could easily continue moving up or price could easily move right back down.
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