Do You Throw Caution To The Wind "Up Here"?

Good Tuesday Morning, MPTraders!  May 21, 2024-- Pre-Market Update: Now we wait... for NVDA earnings after tomorrow's closing bell... What could go wrong in the meantime (two trading days, today and tomorrow)? If I want to worry about something, I can make a compelling technical argument that the April-May bear market in caution deserves investor and trader's attention now, despite the fact that the dominant uptrend off of the 4/19/24 low remains intact.

My attached big picture 4-hour ES chart shows the intermediate-term advance from both the October 2023 low at 4328.50 and the April 2024 low at 4963.50 which represent 23% and 7.4% gains, respectively into this AM's pricing. 

While percentage gains in and of themselves should not be a determinant of investment strategy, they are a measuring stick of market entry risk.  Do you throw caution to the wind "up here" knowing that your entry price is atop a 7.4% index upmove in just the last 4 weeks? Do we need a new, and as yet, unknown bullish catalyst to support throwing additional capital at the market and/or individual names? 

Is NVDA that catalyst?

On my attached 4-hour ES Chart let's notice the positioning of the four big green arrows. The first two green down arrows occurred during the March-April highs at 5322.75 and 5333.50 that subsequently morphed into a Double Top that precipitated a 7% correction into the 4/19/24 low at 4963.50. 

The second two green down arrows occurred within the past week, at the 5/15/24 new ATH at 5349 and at yest's (5/20/24) high at 5348.25. At the moment, this set-up of down green arrows represent merely a new high zone that has put a lid on upside index progress. There is NO evidence of a Double Top (yet), but the current setup looks conspicuously similar to the March-April setup, and for that reason-- coupled with a very "inviting" oversold and complacent condition in the Cash VIX in and around 12-- my risk-management antennae are raised high now.

In other words, it seems to me that everyone is depending on another round of blow-out earnings from NVDA to eradicate the budding potential for upside exhaustion, and a Double Top that sends ES into another 7% to 10% tailspin. 

If we defer to strictly letting ES price action dictate market direction, then ES needs to press into and through key nearest support from 5305 to 5285, which will lock in the May Double Top, and will leave ES vulnerable to downside continuation into a potentially significant correction. Last in ES is 5327.25...

More on NVDA later in the session...

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