Analyzing this Rally

The current ES uptrend is much stronger than I anticipated. Recalled earlier I was expecting ES could start retracing at 750 level. But first meaningful retracement did not happen until ES touched 800.

One can argue all day that this rally will not last, because it is ignited by government rescue plans. But the fact is the uptrend is very strong. Anyone who short in the past month who did not take profit has seen their profit wiped out.

The important thing now is how should one handle this rally? Let's observe the following facts:

• The market is significant overbought in the short term. My estimate is the overbought signal is at least twice as strong as other overbought signals I've seen in months.
• ES has broken the 800 psychological barrier.
• This rally is an extension to an rather strong rally, breaking an attempt to the downside last Friday.

It is quite obvious now the 820 level will be broken in the medium term. However, due to overbought situation, this is the wrong time to enter a longer term long.

The first buying opportunity would be after the first retracement. It would be a mistake to use previous price or moving average to estimate where the retracement would go. Because ES has broken the 800 barrier, I can count on the first retracement will not reach the 800 level. Any price near 800 in the new few days is a long opportunity.

More interesting is the eventual down draft. This will likely be the entry point for a long term long. I will use that opportunity to buy stocks, not futures. Rough estimate is the 790 level, but it is too early to tell.

I am currently take a bet on a retrace to the downside before the rally can continue, and I do not mind holding it for a few days. However if a retracement does not materialize, I will have to cut the positions.

Positions: -2 June ES (810.25, 812.50), -1 ES 810 Call (33)