ES Update 3/31/10

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Yesterday’s touch of the red trend line was the top tick of the past 24 hours (shown by a red arrow on the chart above).

As I type, ES is testing the minor blue trend line that may be in use by traders trying to position in the sideways chop over the past several days.  There could be some stops under that line—but the real test for bulls would come on a push below the gray trend line, which could trigger a number of trailing sell stops.

The present trading range is being determined (in my opinion) by two key features on the chart above; the recent high at 1176.50 and the rising VST trend channel presently at about 1157.  The 1165.50 tug-o-war line is about in the center of that range.

This sideways consolidation zone could be setting up an eventual sweep of close-in stops on both sides as the pincer (created by the red and gray trend lines) narrows. The gray and red trend lines continue to contain the VST action and a clean breakout of one or the other could start the kickoff of the next trending move.

All trends remain up > 1148.25, but I am continuing to keep a close eye on the spotter setup.

ES Update

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The setup has not changed since yesterday, with continued sideways action as the location of the nearest bear and bull stops come closer into range because of a narrowing convergence of those respective trendlines.

Closest counter-trend bear stops are likely located just above the red trendline, with a second larger batch clustered just above the recent high at 1176.50.

Closest bull stops could be just below the blue trendline with the larger and more significant batch likely located just below the rising gray trendline (VST trend channel bottom).

Bears have got to be wondering, by now, if this market is ever going to drop after at least two significant news developments in recent days failed to initiate the expected response in the futures.

The top spotter setup signal has yet to be confirmed, needing a daily close below 1160.25 to do so–and it would be invalidated completely if price were to exceed the trigger high at 1176.50.  I have learned to treat spotters with the utmost respect, however, and so long as this one is in place—it is difficult to not be somewhat apprehensive about the upside prospects and the vulnerability of the broad market to a potential fast downside move.

The descending red trendline (preliminary trident channel top rail) and the rising blue trendline are the current lines in play (in my opinion).  A break above red targets the magenta spotter line next.  A break below blue would open the possibility of spotter confirmation and target the bull stops under the gray trendline.

All primary trends remain up > 1146.25.

ES NarrowingTriangle

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The 3/17 high and gray trend channel touch at 1165.50 (blue arrow on chart above) continues to define the epicenter of action between bulls and bears here in the very short term.

There is a preliminary spotter detection signal in place (magenta arrow on chart above), but it remains as-yet unconfirmed.  The dashed magenta line shows where ES would need to close below to confirm the signal.  If ES takes out the spotter high at 1176.50, then the signal is immediately invalidated.

The shaded blue area defines the resistance void area between 1165 and 1277.  That void of resistance could either lead to a stall in momentum of the upward thrust from February lows—or it could lead to significant gains if an upside breakout from this consolidation zone can be achieved.

A key feature on the chart is the red trident channel top rail drawn in from the spotter high.  CT bears are likely playing off that line (as they were off the two previous dashed red lines—but without a spotter signal in place on the two prior setups).  If ES can jump that line and hold above, then the bulls may be able to trigger another breakout move.  On the other hand, if the spotter signal ends up being valid, then that line may contain any upside thrusts designed to shake off the new CT bears.

The first significant bull stops are most likely located under the bottom of the rising gray trend channel shown on the chart above.  Each day of sideways price movement brings those closer into range–along with the rising S&T short-term primary trend line presently at 1144.

Key features (in my opinion) are the descending red trend line, the rising gray trend line, and the epicenter line at 1165.50.  Eventually one side or the other of that narrowing triangle is going to be run and this could be setting up for an eventual taking of both sides’ stops before the next trending move away from this consolidation.

…my .02

Spotter Signals


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For the first time in months, we have spotter signals that span multiple indexes.

At the close today (Thursday) top spotter setup signals are present on:

S&P 500 Cash Index
NASDAQ Composite Index
S&P 500 Futures Options (ES)
NASDAQ Futures Options. (NQ)

The door is now open for the bears to potentially get something going and an intraday reversal off new highs with a fast move down and a late day triggering of spotter signals is exactly what I was talking about in recent posts.

Things can move quickly when a valid spotter is in place, and if the selling accelerates then the next likely target lower is the bull stops under the VST trend channel.

I have drawn in the first possible trident channel top rail (with a spotter signal in place), which could act as an upside boundary on any snapbacks within a new developing downtrend.  If that red line is taken out to the upside, then the probability increases for the spotter signal to be invalidated.

It does not take long to go from the hunter to the hunted, and so this is a place to start considering the possibility that a tradable top may (emphasis on ‘may’) be at hand.  It is time to snug up stops on existing long positions and to mentally prepare for a potential switch of bias if selling kicks in.

Basic rules for a top spotter are that any move back up above the spotter high invalidates the signal–and confirmation comes on a subsequent close below the signal bar low.

To learn more about spotters be sure to read the following links from S&T User Guide:

We’ll have to wait and see if this first little poke down at the close is the real deal, or not.  If a top is built here, there are likely innumerable candidates for short-side trading for those so inclined, and a look at the Spotter Tab in the Signals Matrix is a good idea for those with full access subscriptions.

Not all spotter signals pan out, of course—and the usual first target for one that does is short-term primary trend support, presently at 1142 area, which lines up with the bull stops under the lower VST channel that I have been mentioning recently.

The bulls haven’t been tested in a while, and so perhaps a stop raid is in order now that bears have been run out at the highs–but we’ll just have to see what develops overnight and tomorrow.

…my .02

A Different Perspective


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I have spent a great deal of time in recent months detailing how one might position trades using shorter time-frames to set up entries for higher time-frames—but every now and again, one has to step back and take in the Big Picture.

The chart above is an attempt to paint the Big Picture setup in the most concise way possible.

I have drawn in three sets of trend lines to show where key trend change events have happened/will happen.

The three red downtrend lines have all been broken.  The last on March 5, 2010 eliminated the last technical argument for a bear market, as defined by strict trend line theory.

The green trend lines represent support and define the place where price must cross to flip the macro trend bearish again.  The closest trend line acts as a dividing line between bulls and bears and I have placed labels on each side of that line to illustrate that.  (The trend line is drawn from the 2/5/10 to 2/25/10 lows)

I have drawn in a blue vertical line on the chart to show where the American Recovery and Reinvestment Act of 2009 (ARRA) was signed into law on February 17, 2009.  Whether one agrees with the premise of governments intervening in private markets, or not–the results are apparent on the chart above and it is only a matter of time before the general populace starts to feel better about ‘the economy’ if the stock market continues to rise.  Sentiment was terrible back in March of 2009 and the news and noise was dismal near those lows—yet it was the perfect place to change bias for those with an open mind.  Stops and Targets issued the first short-term buy signal on March 12, 2009.

The gray VST channel that I have been referring to repeatedly in recent posts shares the same lower rail with the closest trend line support.  That support trend line provides a black and white dividing line to differentiate between bullish and bearish bias in the shortest time frame.

Stops and Target’s Spotter signals can also be useful at signaling a potential turn, coupled with the use of a preliminary trident channel, which I will post about when the setup eventually occurs.

Although many counter-trend traders will try to catch the top and front-run a turn—that is a very difficult thing to do,in practice.  This market has broken into a resistance void—and that can mean a quick and powerful rise—or a stall and retreat back into a trading range.

All trends remain up above that closest trend line—and Stops and Target’s short-term primary trend line is rapidly approaching synchronization with that line (S&T primary trend line presently at 1140 and trend line support is at 1146).

My .02

Be fearful when others are greedy and greedy when others are fearful—Warren Buffet