Charting a Dead Cat Bounce in SP500 and Russell Futures

Sep 1, 2015: 9:43 AM CST

Are we setting up the fall-leg (sell-off) of a Dead Cat Bounce?

Let’s chart the @ES (eMini) and @TF (Russell 2000) futures contracts on the hourly basis.

We’ll start with the @ES:

During this morning’s live Market Briefing with TradeStation, I highlighted the potential for a “Dead Cat Bounce” pattern to complete to the downside in the @ES.

I’m showing the @ES continuous contract – overnight data included – and the “Arcs” that plot a pathway for price.

Note the “Rounded Reversal” that propelled price higher from 1,860 to 2,000 and the negative divergences in momentum and volume that accompanied the rally at the highs.

Yesterday and now especially this morning gave us a downward swing away from the 2,000 level.

If the “Dead Cat Bounce” pattern completes, it suggests price could continue falling all the way back to the 1,860 level as the correction (retracement) retests the prior lows.

Of course, any “interrupt” in this pattern – meaning perhaps we support-bounce here or immediately off 1,900 – suggests that the Dead Cat Bounce pattern would not complete its full retest-of-the-lows target.

We’re seeing the same thing in the @TF Russell 2000 intraday index (for example):

Similarly, the Russell 2000 futures contract bounced up off the key 1,100 level but stalled recently into the 50% Fibonacci Retracement as drawn just above 1,160.

Price gapped lower and traded “down away” from this key pivot at 1,160.

Should the pattern complete – meaning price remains under 1,150 – then it could lead to another test of the 1,100 level.

This is just a simple pattern to measure the current and potential future pathway for price – and thus craft trades.

Click the video below to learn how John Carter turned $150,000 into $650,000 in eight months using a specific option strategy.

Entitled “Options Strategies for Any Market Condition,” John shares his insights for you to learn and copy into your own strategies, especially in light of the recent market volatility.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter: http://twitter.com/afraidtotrade

Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

2 Comments

2 Responses to “Charting a Dead Cat Bounce in SP500 and Russell Futures”

  1. Dead Cat Bounce Says:

    […] By Corey Rosenbloom […]

  2. Muzim Says:

    It’s an excellent opportunity to get into a trade, but we must remember that we need to do strong money management, it’s the best way in order to succeed, if we not good in money management then we could find our self into trouble, so that’s why we need to be careful. I am trading with OctaFX broker where I get all market updates regularly, so due to that factor I am able to work smoothly and always get perfect opportunity to trade with.