Lessons learned part 4

The past week (21-25th of June) we had a very strong week and a powerful melt-up off Sunday's OPEX lows. Those lows were announced on Monday in the am on the daily blog post with the mention "This set up has the potential to mark an important bottom and trigger an explosive bounce". That came to pass and the market relentlessly pushed higher, with only small pullbacks. Because the short term GSIs (Globex Sentiment Indexes) caught that potential, it is time to look more closely at these kinds of set-ups and see what provides confirmation or non-confirmation.

First, let's look at FGSI, which because it's the fastest will usually trigger the set-up first and will also be the 1st one to confirm. The chart below was the one posted on the blog on Monday, June 21st. As we can see we had a large unconfirmed low, the market rallied right into a bearish EE (excess energy) level, hesitated briefly, then broke through it. That was the confirmation that the unconfirmed low would hold and it is a bullish breakout from there (roughly 4154ish).

Now let's have a closer look at an earlier set-up of an unconfirmed low, which failed, namely the Friday morning low. We had a pretty large unconfirmed low (although the set up was not as ideal as the one from Sunday, as the lows were too close to each other, not to mention the IGSI and MGSI set-ups). And then the ensuing bounce was showing that buyers are inefficient, as price barely bounced 20 points off the lows, but FGSI was already above the centerline and triggered a very large class B bearish EE vs the last time FGSI was in that area. Price then whipsawed from that area back towards the unconfirmed low where buyers made another attempt to stick save that low (where the green arrow points). The bounce triggered a bearish EE which held and then the breakdown happened.

So the main lesson here is - whenever we have an unconfirmed low (or high), that shows the potential for a larger turn. But the key to that potential playing out is how price acts when we have an EE set-up after that. Breakout/down of that EE set up is the confirmation that a larger turn is playing out.