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Yesterday went just as expected…

We got the push through the top rail of the VLT trident to coincide with the FOMC meeting–and then we got the nearly unanimous pullback off the highs on cash and futures indexes (NQ was the exception).  We also have a correlating bottom spotter on the US Dollar Index from October 25th

The Russell 3000 showed 431 new spotter signals internally for a total of 533 active spotters (unconfirmed) to go with 702 confirmed.

Long-time readers know the drill with spotters by now–the high of the top-spotter signal is the absolute hard deck for any counter-trend speculation, and we are watching to see if we can get a daily bar close under the low of the spotter bar for initial confirmation.  Spotters are always counter-trend when they are detected and under no circumstances should anyone let a counter-trend speculation be drug back to the other side of a spotter signal (which is a powerful trend continuation buy signal).  One tick above that top-spotter is all it takes and the setup is invalidated.

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We are getting the first bounce right where it is expected–from a touch of the top of the last VST range.  There is a breakaway gap at 1759, which is likely to be the first upside target.

Intraday lines to watch for ES are yesterday’s bar range of 1773.25 and 1751.75.  A tick above and the top-spotter is invalidated.  With a daily bar close below, we would get the initial confirmation.  Pros don’t usually make tops easy–especially if there are sufficient numbers of bears, whose tight buy-to-cover stops are just too tempting to pass up.  The pros have the advantage of seeing real-time short interest numbers and like I said yesterday–the only way this setup can work is if the majority of bears have given up.

If bears do get a foothold here, the first block of sellers are under 1734.50, with first ST support coming just below near the old range top at 1726.75.

I have also drawn in the descending trailing stop trendline that professional bears will use to gauge the risk of a counter-trend trade.  If that line is breached, a run above the spotter top becomes much more likely.

Let’s see how this goes in the coming days.  The setup is here, but we’ll need to see how that spotter high holds up.  Remember–one tick above the spotter high is all it takes and this particular setup is finished.

…my .02

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ES has more than tripled in value since the 2009 VLT low at 566.  At long last, the top rail of the trident channel has now been breached.  Whether we get a reversal from this general area remains to be seen–but the setup is there.

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Today we get the FOMC announcement at 2 PM ET

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The hourly bar chart above shows the channel breach at 1766.  That line now becomes the intraday bull/bear line around the FOMC announcement.  The logic here is that channel was the last bastion for bear stops.  Above represents a continuation of the squeeze.  Once price drops below, however, there should be no further need to revisit the squeeze area–unless we get a plethora of new bears front-running the FOMC announcement.

As I have said in previous posts, we are due for at least a local high from the stop sweep reversal at 1640–but the major trends remain officially up above that line.  If we were to get a massive showing of unanimous top spotters across the indexes and Russell 3000 followed by confirmation, then we could be ready for the long-anticipated pullback, and time will tell how far it goes–and if bullish trending paradigms begin to eventually flip.

Top picking is a very dangerous game for those who lack patience.  Let’s start by watching the intraday bull/bear line at 1766 today.  Intraday price action is bullish above and bearish below.  The next closest trend support level is VST at 1734.50

…my .02

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The next scheduled big event is the FOMC meeting announcement next Wednesday, October 30th at 2pm–the market could drift sideways a bit between now and then, or we could possibly see a front-run of the announcement.

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I have been pointing out the close proximity of the top of the VLT trident channel, which is currently at the 1765 area. A perfect setup (in my opinion) would see a pop up to that channel top and then a sell-off with massive numbers of new top spotter signals across the major indexes–and then confirmed internally in the Russell 3000.

What might that spotter setup look like internally, if it were to happen?

Let’s take a look back to my post at the last VLT bottom on October 5, 2011…

Big Picture Blog post October 6, 2011

We saw a whopping 1,713 bottom spotters on October 4, 2011 with 1,207 spotters confirming the next day!  If we are to see a true VLT top form near this area, we might see similar sorts of numbers of spotters form at the inverse extreme–but tops can be a little trickier to spot than those massive V bottoms.

At any rate, what I am watching for next is the potential formation of new top spotter signals possibly in near conjunction with the upcoming FOMC meeting.  In order for this setup to work out, the bears are going to need to give up completely and buyers will need to be exhausted before the turn.  Nothing says a top has to occur near here, of course, but a channel top setup is present.

I was heavily criticized on public message boards by some folks back at the bottom of this amazing run when I tried to warn bears what was coming–and the futility of shorting against such a powerful reversal.  I also started posting depictions of the VLT trident channel to give some overview of the upside potential for the move.  Well, here we are now within a handful of points of that trident channel top.  I can’t say it gives me any particular pleasure in being proven right–but it just goes to illustrate how powerful herding instincts can blind even the best of traders at a major turn.  Markets move based on the positioning of capital on the other side of the pro’s trades.  When enough money is aligned in such a way as to invite a powerful reversal move–then it happens.  I would especially encourage you to carefully read the last ‘fun fact’ paragraph (highlighted in blue font) of that October 6, 2011 post linked above.

/rant

…my .02

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As I mentioned in my last post–the next order of business is finding a new structural high to pair with 1640.  I have updated the hourly bar chart above to show the minor resistance zone between 1743 and 1746, which is just above the current price.  I have also changed the color of the VLT (very long term) trident to magenta to emphasize it on both charts.  That channel top has been my long-time target for this VLT move from 566.  It will be very interesting to see what happens if/when ES gets to that rising top rail, which is currently near 1765.

…my .02

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We now have the higher structural low at 1640 confirmed.  The market’s next task is to set a new structural high.  The following charts show the current configuration of support and resistance targets zooming in from monthly to hourly…

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monthly

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weekly

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daily

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hourly

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The building of a new higher ST structural low at 1640 moves the trapdoor level up to that line.  Bears cannot flip the macro trend until/unless the last trending support is broken.  Just below that level is where institutional trend followers will move their trailing stops.  We won’t see significant selling until/unless that critical support is broken.

The next key target is the stops above 1726.75, which was the last structural high formed 9/19 at a touch of the weekly trend channel top.  The bearish trident channel formed from the top spotter at that 9/19 high has now been broken in the last push higher–and price is currently consolidating in that stop area.

The ST range here is 1640 to 1726.75.  If we get a stop run above 1726.75, that line will become the next bull/bear line once the buyers (bears covering) abate.  If we get a lower structural high (under 1726.75), then we could see a run back toward the bottom of the range to again build the tension and uncertainty that fills the other side of the pro’s trades.

…my .02

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