Options Rollover Day

Futures Options have now rolled over from the June 2019 to September 2019 contract with a difference of +4 points from ESM19 (June) to ESU19 (September).

All previous chart numbers have been adjusted to reflect the new contract pricing—so, for example, the Long Term stop/reverse line from the expiring June contract at 2844.50 now becomes 2848.50, and so forth.

 

 

 

 

 

 

 

Market Update

In my last post I concluded with an observation that the market was looking a little precarious after a Top Spotter was generated on May 1st in conjunction with a double top from September of 2018.  Price action has been mostly down since the Top Spotter confirmation sell kicked in at 2916.

So, let’s take another look at the market configuration here, comparing Stops and Targets with my charts in three timeframes…

 

 

The screen capture above shows the S&P 500 Futures Options analysis page from Stops and Targets.  My eyes start at the chart on the right and what I see is a short-term rally in a long-term bearish market.  I say that because the bottom stop/reverse line at 2763.75  is green and the top stop/reverse line at 2844.50 is red.  The bottom line represents short-term (ST) and the top line represents long-term (LT).

I then read the analysis and it confirms my initial impression.  This is a BULL 1 multitrend configuration (short-term rally in a long-term bear) with short-term resistance next coming at the IT stop/reverse line at 2841.25.

 

Let’s take a look at my charts next to see how those numbers were calculated, and maybe get a little deeper insight on the Big Picture…

 

 

The monthly bar chart above represents the long-term timeframe…

The very long-term bullish trend is certainly intact, as shown by the rising green trendline since the 2009 bottom–but we currently have a long-term pullback underway.

How do I know this is a pullback, you might ask?  The answer is found by comparing the current bar (June) high/low range to the previous month (May) bar high/low range.  So far, we have a lower high and lower low relative to last month–so long-term price action remains bearish until/unless we see a breakout above the previous bar high to resume the very long term bullish move.  It is unlikely that we will see that happen this month due to the length of the prior bar.  That’s not to say it can’t or won’t happen–but current odds suggest it is unlikely, especially while price trades below the long-term stop/reverse line, which is currently at 2844.50.

So, the next question one might ask is ‘what determines that stop/reverse line?’, to which I would reply ‘excellent question!’ and then proceed to explain…

Many times here I have repeated my definition of a bullish trend as ‘a series of higher highs and higher lows’ and a bearish trend as ‘a series of lower highs and lower lows’.  So let’s apply that definition to the current bar and the previous bar…

Last month we saw a break under the series of higher lows from the previous 4-month bullish trend sequence (higher highs and higher lows).  That break below the last higher monthly bar low came at 2844.50.  At that exact point, Stops and Targets generated a long-term sell signal.  See how that works?

That trend change line became the long-term stop/reverse line.  It won’t move again until a new trending sequence starts–either a lower high (bearish) or a higher low (bullish).  Since we already have a lower low, we can’t have a new bullish trending sequence start this month, unless price were to break above last month’s high.  We could, however, still see the stop/reverse line move lower at the end of the month (still a long way away) but only if the June high remains below the stop/reverse line.  There is lots of trading action yet to come, so we’ll have to wait and see how it goes–but so long as the current monthly bar high remains below the stop/reverse line the bears have the statistical advantage.

One last point on the stop/reverse line.  If price is trading inside of the previous bar on the chart–we have a ‘rangebound’ market.  that is what Stops and Targets is saying with the sideways arrow next to the long-term trend on the range envelopes section.  The red color of the arrow lets us know that it is current rangebound… but with a bearish bias under the stop/reverse line.

 

One last thing to point out at Stops and Targets’ range envelope section…

Do you see how the long-term lower envelope number at 2750.00 is colored green?  That lets you know that a bullish range envelope signal occurred there.  In this case, it was a counter-trend buy signal, which is analyzed in detail on the long-term tab…

 

… the long-term range bottom rally signal was generated when price dipped below that range (to a new current bar low of 2744.00) and then crossed back above the previous month low at 2750.00.

Note that it was a great warning signal for a potential short squeeze rally start.  Note also that the upside counter-trend target is the stop/reverse line at 2844.50

All of that jives perfectly with my chart analysis.  Pretty cool, right?

 

Next, let’s move to the intermediate timeframe…

 

 

 

Each bar on the chart above represents one week of trading.  The intermediate timeframe at Stops and Targets is based upon weekly bars.

What I see is five consecutive weeks of lower highs.  Clearly, the trend here is bearish and since the previous bar’s high was lower than the previous location of the stop/reverse line, that line has moved lower to follow the trend and to designate the precise point where, if crossed, the intermediate bearish trend would reverse.

Last week’s bar high was 2841.25 and if you refer back to the Stops and Targets screen capture at the top of this post you will see that is exactly where the IT stop/reverse line is currently located.

Also, if you look at the range envelopes section you will see a red down arrow , which indicates a trending intermediate bearish market (lower weekly highs along with a descending stop/reverse line).

Same deal here as for the long-term regarding a bullish rally in a bearish trend.  We would need to see a new higher weekly high to reverse the intermediate trend.  Note that professional traders will typically trail protective stops at the stop/reverse line to lock in profits from a trending move.

It is usually best not to be long below a stop/reverse line in that particular timeframe.

Intermediate bears are fine below that line, but would begin to cover and reverse on a move above.

 

Last, let’s take a look at the short-term timeframe…

 

 

The short-term timeframe at Stops and Targets is based on daily bars.  The current daily bar (June 5) shows a higher high and higher low so far today.  That is the second bar in a sequence to a higher low and higher high yesterday… that is a bullish trend.

You can see that the last lower high in the previous bearish sequence was at 2763.75.  When price crossed above that line it also crossed the short-term stop/reverse line and became a buy-to-cover signal for short-term bears and a simultaneous buy signal for short-term bulls.  See how that works?

If today’s low finishes above the short-term stop/reverse line then that line will move higher (to today’s higher low) after the close to protect and lock in bullish profits.  If/when that line is crossed below, then it would be time for smart short-term trend-following bulls to sell–and the door would open again for bears to rejoin the downtrend after the short squeeze runs out of momentum.

I have added a screen capture from Stops and targets above to show where/when those short-term signals were generated…

The short-term trend started at the stop/reverse line cross of 2763.75 on June 4 and has advanced +49.25 at the time of this writing.

Note that the next upside target is 2841.25, but also note that target (intermediate stop/reverse line) may not be hit if we continue to see a sequence of lower weekly highs on the chart.  All signals have to be taken in context with the next higher timeframe.

This bullish rally is very nice (if you are not a bear being squeezed, that is) but it still has some work to do to reverse the larger context bearish structure that is currently in place.

So long as the daily bars continue to build higher lows, it’s all good for bulls here–but look out below if that short-term stop/reverse line fails to hold on a pullback.  Especially if we eventually see lower highs form on the weekly and monthly bars.

All bullish reversals start in the short-term timeframe, of course, and must ultimately challenge and then overcome bearish resistance from the higher timeframes.  Let’s see what happens next if/when price gets to the intermediate stop/reverse line.

Ideally, I would love to see (or have seen) a huge trove of Bottom Spotter signals mark a solid reversal bottom–but this current pullback from May 1st started from a Top Spotter configuration, that was actually a sneaky double-top with a nasty outside bar on the monthly and daily bars–followed by a big gap down open on May 10th.  That was most likely the pros doing their thing to trap and exploit bulls after earnings season and the annual Russell Reconstitution was complete.

Not sure this feels like anything terribly more than pocket-picking at this point by the pros, but we’ll have to wait and see how the structure I pointed out above unfolds going forward.

It’s all good for short-term bulls above the stop/reverse line at 2763.75 –but a sell-off move underneath today’s current low at 2801 would bring higher timeframe sellers back in.

The intermediate stop/reverse line is very important going forward.  LT/IT bears don’t want to see that line broken to the upside–but ST bulls are salivating at the prospect of pushing into the trove of buy-to-cover stops above those stop/reverse lines that are following those trends lower.

Just like the Stops and Targets summary chart shows… it’s currently all about 2763.75 below (2801.00 if today’s current low holds into the close) for ST bulls, and 2841.25 above for IT and LT bears.

…that’s my .02

 

 

 

Market Update

It’s been awhile since we’ve taken a look at the Big Picture for the broad market.  I like to use the S&P 500 Futures Options as a proxy because they tend to lead the market… in other words, they are the tail that wags the dog.

We are at another important juncture here, and what happens next could be telling.

Let’s start by taking a look at the Stops and Targets analysis for the futures symbol ES and then break down each timeframe from long-term back to short-term…

 

 

The screen capture above shows the current analysis for ES (S&P 500 Futures Option).  My takeaway from a quick glance here is as follows:

  1. All three timeframes are currently bullish and trending above their respective stop/reverse lines.
  2. There is an unconfirmed Top Spotter signal at 2961.25 (confirmation would be a daily bar close below 2916, and invalidation would happen on a move above 2961.25).
  3. I see two counter-trend sell alerts for the intermediate and long-term timeframes at the respective range envelope tops.
  4. The short-term timeframe is currently in play intraday at the 2932.75 stop/reverse line.

That all took me about 5 seconds to see on a glance… so now let’s take a look at the individual timeframes and compare using my charts…

 

 

 

On the chart above, each candlestick bar represents 1 month for the S&P 500 Futures.  This aligns with Stops and Targets’ long-term timeframe.  So let’s dig in for a closer look…

Here’s what I see…

  1. I always start by looking at the current candlestick range and compare it to the most recent bar to determine trend configuration.  The current bar has a higher low and a higher high, so I know the bar is currently trending bullish in this timeframe.
  2. In a bullish trend what matters are the higher lows.  So long as the market continues to make higher lows, the trend continues.  If we get a move below the last higher low, then that is a trend change and the bears are in charge.
  3. The current last higher low on the monthly bar chart is 2844.50, which is the long-term stop/reverse line.
  4. On the chart above, the last trend change occurred in February when the last lower high from the bearish downtrend was exceeded to the upside at 2718.50.  (Take a look at the screen capture from Stops and Targets above to see the trend start date and price is the same).
  5. The last thing that sticks out to me here is the test of the all-time high from September of 2018 at 2956.50.  We have recently had a poke above to 2961.25.

 

Okay, so taking all of that into perspective, we are at the big target for the long-term reversal that started back in February.  The reason that the all-time high is the target is because just above that line is where the last of the hard-core bear stops can be found.  Those stops provide guaranteed buyers as bears are forced to buy-to-cover (buy to replace borrowed shares in the case of equities).

The poke up into new high territory activated many of those stops, and they would have been countered by professional bullish traders selling into them to take profits on the trade from the December low.

So, now it gets interesting…

The question is whether the market can sustain altitude once the dance between profit-takers and stop covering stops.  If so, and the market is able to close a monthly bar above the all-time highs then we could see an explosive move higher once a new trading range opens.  However, in spite of all the excellent economic news (thanks Trump administration policies), this market could be extended here and in need of a breather.  That is what the current Top Spotter signal is warning about… but until/unless it is confirmed with a close under 2916 then it is just that… a warning to be careful on the long side.

 

 

 

On the chart above, each candlestick bar represents one week, which correlates with Stops and Targets’ intermediate timeframe.

My scan pattern is the same as for the monthly bars…

  1. The current bar shows a higher low and a higher high compared to the most recent week, so I know the bar is bullish and will remain so above the last weekly bar’s low at 2899.
  2. That assessment is confirmed on the Stops and Targets screen capture (at the top of this post) by the intermediate stop/reverse line at 2899 and also the green arrow next to the intermediate range envelope.
  3. The intermediate trend originally reversed in January and most recently turned bullish again at 2,780.50 on 11-Mar-19 after a brief dip below.
  4. I also note the test of the all-time high at 2956.50 and see the range-top pullback warning below last weeks high of 2942.75 (see ‘range envelopes’ on Stops and Targets screen capture at top of page).

The intermediate timeframe has been extremely useful for determining what I call stop sweep/reversals, and I have been documenting those occurrences here for many years.  The last one (#10 ten since 2009) occurred at the shaded green circle on the chart above.  The stop sweep line was at 2612.50, but you can see on the chart above that Stops and Targets beat my chart to the actual ‘official’ trend change signal with an intermediate reversal signal at 2528.50 in January.  *However, I pointed out the VLT trendline bounce in real-time on the actual bottom day here, so I’ll claim the win there 🙂

So long as we continue to see those 4-bar pivot lows get reversed on the weekly bars, this bullish paradigm that has been in place since 2009 keeps chugging along.

 

 

 

Each candlestick bar on the chart above represents one day, which correlates with the short-term timeframe at Stops and Targets.

  1. Note that todays bar, so far, has a higher high and a higher low (bullish)
  2. The current price has also crossed back above the short-term stop/reverse line at 2932.75, so day-trading bears are forced to cover above that line (forced buyers).

The takeaway here is the same as the other two timeframes… we are seeing a test of the all-time highs and waiting to see who comes away with strength after the sellers and buyers trading around that line are all committed.  Assuming that we don’t get a reversal and a sell-off before the close of the bar today, the short-term bulls are in the driver’s seat above the stop/reverse line at 2932.75…especially if we get a futures-driven push to close the day at a new high.

It’s really all about the resistance at 2956.50–in all three timeframes.  If price can be pushed into a new higher trading range, then we could see new buyers enter above that line.  Until/unless that happens, though, the market could be vulnerable to a pullback if this push higher runs out of gas before invalidating the Top Spotter at 2961.25

So, this is probably a good area to think about snugging up your stops on long positions–just in case.

Maybe think about it this way… if the pros have already run the stops above the all-time high and are positioning (short) for a pullback… why would they want to go back above 2961.25?

We’ll find out shortly how the pros are positioned… either they are silently rigged for an upcoming dive, or prepared to exert significant buying resources (expecting higher prices, if so) to sustain a breakout higher.

Seeing Top Spotters across all the Futures and many of the cash indexes makes me r-e-a-l cautious at this point until/unless those Spotters get taken out to the upside.

…my .02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Update and MAJOR Upgrade to Stops and Targets

Let’s take a quick peek at the current broad market configuration using the S&P 500 Futures Options as a proxy.

There has also been a MAJOR upgrade to Stops and Targets and I’ll use this post to show you how that update now dovetails perfectly with my charts that I often display here.

 

 

click on image to enlarge

 

Let’s start by looking at the monthly bars. The monthly bars are used by Stops and Targets to classify the ‘Long-Term‘ timeframe.

On the chart above, each candlestick bar represents the open, high, low, and close for one-month trading periods dating back to the 2009 Bear Market bottom.

Note that the current active bar (April 2019) has both a higher low and a higher high than the previous bar (March 2019), which had a high-low range of 2726.50 to 2866.

We see the same trend dating back three additional bars which creates a sequence of four consecutive higher lows and higher highs.  That is the very definition of a bull market trend… ‘ a sequence of higher highs and higher lows‘.

 

 

The previous monthly bar is what determines the current ‘long-term range envelope’ that is displayed on the Stops and Targets summary analysis page (see the screen capture above) for each tracked symbol.  To make it easy to find the long-term range I have circled that range envelope and drawn arrows to the corresponding long-term range marks on the summary bar chart.  A small gold ‘ L ‘ marks the top and bottom of the long-term range envelope.

So, ‘long-term‘ in Stops and Targets always refers to the monthly bars and the monthly bar trading perspective of professional long-term investors.  See how that works?  (That’s very important to understand, so please re-read the previous paragraphs, if you need to, before moving on).  If you still have questions, then feel free to ping me at the ‘send comments’ link at the top of this page and I’ll address those.

The long-term range envelope is updated at the start of each new monthly bar, so the latest long-term range envelope update occurred yesterday on 1-Apr as the new April bar, now in the second day as I type, began trading.

So, taking my chart together with Stops and Targets, we can see that the long-term is currently trending bullish (that is what the little green arrow means right next to the long-term range envelope).  The long-term (monthly bars) turned bullish on 12-feb-19 and has advanced +5.66% so far.

We can also immediately see that the long-term trend would reverse to bearish on a cross below the long-term Stop/Reverse Line, which is currently at 2726.50.  The Stop/Reverse line will always be the same as a range bottom (or range top when bearish) in a trending market.

The reason that Stop/Reverse lines are so important is because that is where stops tend to congregate for traders in a particular timeframe.  In this example, long-term professionals are going to be trailing profits stops at or just below the Stop/Reverse line because that is equal to the previous monthly bar low.

Pretty cool how that all works.

 

 

 

click on image to enlarge

 

Next let’s take a look at the weekly bars for the same symbol on the chart above.

Stops and Targets uses weekly bars to classify the ‘intermediate‘ timeframe.

On the chart above each candlestick bar now represents the open, high, low, and close of one week of trading for the S&P 500 Futures Options.

Note that the current active weekly bar (April 1 to April 5) has both a higher low and a higher high than the previous weekly bar (March 25-29), which had a high-low range of 2,789.50 to 2840.75.

We see an intermediate trend sequence dating back one additional bar from a bounce off the intermediate Stop/Reverse line two weeks ago.  Note that I have drawn in the historical location of the Stop/Reverse line as a color-coded line that looks a lot like a moving average (but is quite different) to the untrained eye.  The trend bias was intermediate bearish under that (red) Stop/Reverse line and is currently bullish above 2805.25.

 

 

That previous weekly bar is what determines the current ‘intermediate range envelope’ that is displayed on the Stops and Targets summary analysis page (see the screen capture above).  I have circled the intermediate range envelope and drawn arrows to the intermediate range marks (a small gold ‘ I ‘ marks the top and bottom) on the summary bar chart.

The intermediate-term range in Stops and Targets always refers to the weekly bars.  See how that works?

That range is updated at the start of each new trading week, so the latest intermediate-term range envelope update occurred on Monday, April 1st as the new week that ends on Friday April 5th began trading.

Because the last weekly bar low (2789.50) was not yet higher than the intermediate Stop/Reverse line (currently at 2805.25) the stop/reverse line remains where it was last week and is still inside of the intermediate range. When the stop/reverse line is not equal to either the bottom of the range (trending bullish) or the top of the range (trending bearish) then the symbol is inside of a trading range and that is what the sideways arrow symbol means next to the intermediate range envelope.

If the current weekly bar low of 2844.50 were to hold through the close on this coming Friday, then the intermediate Stop/Reverse line would move up to that higher low on the following Monday and the sideways arrow would be replaced with a trending arrow like in the long-term timeframe example above.  See how that works?

The Stop/Reverse line for each timeframe only moves when a trend develops–and then once price eventually crosses back under (or over) that line then we will see a ‘stop’ and a trend ‘reversal’ signal.  How that all works is very clever.

The intermediate trading bias turned bullish on 11-Mar-19 and has advanced +3.30% so far.  (That information comes from the trend table on the same summary page).

Again, the reason that Stop/Reverse lines are so important is because that is where stops tend to congregate for traders in a particular timeframe.  In this example, intermediate-term professionals (swing traders) are going to be trailing profit stops at or just below the intermediate Stop/Reverse line because in this range-bound example, that is where the last higher low occurred (weekly bar of 22-Mar).

 

 

click on image to enlarge

 

And finally, let’s take a look at the daily bars for the same symbol on the chart above.

Stops and Targets uses daily bars to classify the ‘short-term‘ timeframe.

On the chart above each candlestick bar now represents the open, high, low, and close of one day of trading for the S&P 500 Futures Options.

Note that the current active daily bar (today, 2-Apr) so far has both a higher low and a higher high (just barely) than yesterday’s bar (1-Apr), which had a high-low range of 2844.50 to 2873.50.

We see a short-term trend of higher lows dating back four bars from a bounce on 25-March off the intermediate Stop/Reverse line.  I have again drawn in the historical location of the Stop/Reverse line as a dashed color-coded line.  The market was short-term bearish under that (red) Stop/Reverse line and is currently bullish above 2844.50.  If today’s low ends up greater than the short-term stop/reverse line, then that line will move up to today’s low once the next day starts to trade.  That is why narrow range day often lead to wide range days because the professional trading algorithms are triggered when those range envelopes are crossed.  Again, it’s extremely important to understand that concept to get the most out of what Stops and Targets is telling you.

 

I have also drawn in the intermediate (thin solid line) and long-term (thick solid line) stop/reverse lines along with support and resistance targets on this chart.  This layering technique helps to show how Stops and Targets brings multiple perspectives into play when determining the multitrend rating.  It also shows overlapping timeframe strategy decisions and is all mirrored on the summary tab.  Note that the stop/reverse lines are currently at ST = 2844.50, IT = 2805.25, and LT = 2726.50.  Because last price is > ST and ST > IT and IT > LT we have a fully-bullish BULL 10 multitrend rating and that will remain so until price eventually crosses below the short-term stop/reverse line (which would change the rating to BEAR 1).

 

This new MAJOR upgrade to Stops and Targets core logic engine now brings all three timeframes into what S&T calls ‘aggressive mode‘, which is theoretically the fastest possible response time to a trend changes for each (monthly, weekly, daily bar) timeframe.

I have been using an advanced beta version of this software upgrade for several weeks and absolutely love it.  With the range envelopes now being equal to real-time monthly, weekly, and daily bar high-low ranges, it just doesn’t get any easier to set following stops (for when a trend eventually changes at a stop/reverse line) and to easily determine partial profit exits as calculated targets are hit (often stops being run at range envelope edges).

 

It’s all good for bulls until price eventually crosses back under the short-term stop/reverse line.  Once that happens, the next set of targets flip to intermediate, and then to long-term.  Once the entire sequence runs its course then we eventually get a trending move exhaustion …and that is what top and Bottom Spotters are all about.  That is exactly what happened at the last major Bottom Spotter on December 26, 2018… and we could be getting nearer to a potential Top Spotter that will come when this current move is exhausted.

*Note that price is closing in on the last line of confirmed resistance at 2879.50 shown on the daily bar chart above.  That line is left over from the first major long-term sell signal (when support was broken) from the previous market top in September of 2018.  So, let’s keep a close eye on things right in this area to see what happens as that major resistance is approached.

The example shown above is for the S&P 500 Futures Options, which are a great proxy for the overall market trend–but the steps for trade entry, risk protection, and profit-harvesting are exactly the same for any of the thousands of tracked symbols from Stops and Targets.

…my .02

 

 

 

Options Rollover Day

 

Futures Options have now rolled over from the March 2019 to June 2019 contract with a difference of +5.5 points from ESH19 (March) to ESU19 (June).

All previous chart numbers have been adjusted to reflect the new contract pricing—so, for example, the Top Spotter from the expiring March contract at 2819.75 now becomes 2825.25, and so forth.

 

 

 

click image to enlarge

 

In my previous posts I pointed out that the target for the push up from the powerful Bottom Spotter low in December was most likely going to be the descending top rail of the long-term range envelope.  For the expiring March contract, that target was 2818.  With today’s S&P 500 Futures Option rollover to the June contract, that target converts to 2823.50 (+5.5).

…the Top Spotter signal was generated at 2825.25.  Smiling Face With Sunglasses on Apple iOS 12.1

 

So, here we are today at quarterly rollover (after one of the greatest 3-month rallies ever!) now watching to see if the Top Spotter will be confirmed by a daily bar close beneath the spotter signal bar low, which was 2773.

That is the line in play now.  A close below would confirm the spotter and the next likely major target lower would then become rising intermediate range envelope support, which is currently at 2686.25.

 

 

click image to enlarge

 

While not quite as impressive a number of Top Spotter signals (1015 total active) that we saw at the corresponding December Bottom Spotter low there are, nonetheless, quite a few Top Spotters showing up in the Russell 3000 stocks (see screen capture above).  A direct link to the image above is here at Stops and Targets.

It’s all about 2773 today, as we watch for a possible Top Spotter Confirmation.

…my .02