S&P Consolidates as Bulls Wait for Next Move

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If there’s one that’s for sure in the S&P futures, it's that the markets will always go up and down — but the question is, by how much? 

When you look back, during the credit crisis was the first time I saw a lot of 100-point moves. After that, the ranges shrunk down to 40 to 60-point ranges and then back to what we are seeing now, 30-point ranges. After the COVID-19 pandemic, the ranges expanded again; they went from 100+ point ranges all the way up to to 400-point ranges. After that they shrunk down to 60 to 80 point ranges, then to under 50 points, then to where we are today— back at 30-point ranges. 

I think this happens because the market goes into some type of rebuilding/repairing process after a big move. They need to drop, and pop, and back and fill. I never knew about back-and-filling on the floor. Sure I could see a chart, but not like today’s charts if you learn how to look for it. 

The first part is, back-and-fill patterns can be 30 points (like they are today) or 100 points (like in a more volatile tape), but either way recognizing them can make a big difference. Once the ES finds a bottom and starts moving back up — like the current rally — they sometimes fall into these lumbering narrow ranges and in most cases that's a positive for the bulls. 

I could never see that in the pit, but one of the most basic chart formations is back and filling. If you can learn to recognize this type of pattern — both long and short term — and it matches up with your support, it can be a very accurate tool for buying the dips and making some great entries. 

Personally, I depend on this for my ES entry levels and have found that on days when you have tight ranges, the drop under the VWAP could only be by 3 or 4 points. On other, more volatile occasions, the ES could drop 8 to 12 points under the VWAP. 

If I see small buy imbalances showing up in the NQ, I buy the ES right away and put in a stop. If I catch it right, I usually make 6 to 10 points quickly. But if they pop back above the VWAP, I’ll try and save a few contracts and trail a stop. 

Like I said, it’s very basic pattern recognition, but it works for me and I think for a lot of others too.