ES Update

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As an addition to my earlier post today, I am including the hourly chart showing the current status of the VST and ST support levels.  ES is nearing the VST ideal buy zone between 1774.50 and 1784, which is formed from the breakout on 11/13 and the new local high at 1812.50.  We also have a confirmed top spotter signal on yesterday’s close, with the confirmation line at 1802.75.  There was also a break of ST trendline support at 1804, and finally, we have our first VST counter-trend sell signal at 1799.75

Let’s use that VST countertrend sell signal at 1799.75 as the intraday bull/bear line, and see how it goes here at the test of the VST/ST breakout zone above 1773.25 and that VST counter-trend sell line.

FYI: The VST trailing stops for trend-following bulls are currently sitting under 1774.50

Remember from my earlier post that what really matters in the current configuration are the location of the last higher lows–and those are at 1774.50 (VST) and then 1736.50 (ST).  Those lines are what would need to be flipped and held for this to morph from a simple pullback into something more meaningful.

…my .02
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Update 12/4 @ 8:50 am:

I just noticed that the top of the VST ideal entry zone was incorrectly labeled yesterday as ‘1778’ when it should have been 1784.  I have corrected it in the chart above.
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ES Update

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I am just back from a wonderful Thanksgiving trip where I enjoyed several conversations with family and friends about the markets.  One theme was prevalent, though, and that was a worry about maintaining gains once this thing eventually starts to turn back down.

When asked my opinion, it was the same, of course, as you read here… this is a bull market and the trend is your friend until it ain’t.

The next question, invariably, was ‘how does one know precisely when the trend has changed?  –or, more succinctly ‘when should I get out?’

So, the chart I showed was the one above.  It paints the picture and illustrates the pattern perfectly.

That is a weekly bar chart of the ES futures and at the far left we can see a dashed blue line that marks the beginning of the Obama administration.  It doesn’t take a rocket scientist to determine that the Chicago Mercantile Exchange absolutely loves their hometown boy–even as >61% of Americans (if one can believe the polls) disapproves.  This market has climbed methodically since March of 2009 and in so doing it has developed a personality around the weekly bars that you all might find to be interesting…

The definition of a bull market is a series of higher lows and higher highs.  To keep things simple, I have marked just the lows on the chart above with green dots.

There have been 16 intermediate lows established since that 2009 low at 566.  Of those 16 lows, 13 have been ‘higher lows’.  We have had only 3 lower lows (highlighted with yellow ovals)–and two of those were the stop sweep/reversal types that lasted less than a week.  We have only had 1 true breakdown of a higher low than resulted in 12 weeks in the ‘bear zone’ under the previous higher low.  That breakdown at 1198 in August of 2011 led to a long-term buy at the double bottom in October of 2011.  Since then we have seen 6 consecutive higher lows in the intermediate time frame.

So, what does all that mean, you ask?  It means that the paradigm for the futures-led rally from the 2009 lows is that the fat lady hasn’t sung on this rally until we see a break of support at a previous higher low that is not immediately reversed.

You guys that have been reading my posts for a long time know that I am a fan of fractals.  One can dissect the patterns from highest timeframes to lowest and see the same sorts of things repeated internally.  The chart above really makes the higher low sequence since 2009 stand out–and if you look to the left of the ‘Obama line’ you can see what the end of a bear market looks like with a series of lower lows.  That paradigm was reversed when the last lower low at 638.75 was overtaken in March of 2009.  The market has not looked back since.  (As the time frames become shorter–the picture becomes a bit more muddled–but the same basic structure is always there.  For the short-term, the last higher low was at 1736.50)  In time we will see the opposite weekly bar paradigm shift when this bull eventually reverses–but no one knows when that will come, the best we can do is to know ‘where’ it will come (at a cross of the primary trend lines).

So, I know the market has been incredibly boring lately–but this is the part where many traders blow it by getting complacent.  For example, virtually everybody got comfortably bearish in early 2009 and most people completely missed the turn at the bottom that has since led to a tripling in value of the ES!

As I told my family and friends at our Thanksgiving talks… absolutely continue to ride the bull as long as it goes, but be sure to honor those primary trend trailing stops, which are shown on the first ‘summary’ tab of each symbol in Stops and Targets.  When the next bear starts (and it will at some point), the tends will start to roll over from shortest to longest and that is why I have been hammering on the importance of ES 1736.50 for the ST (…and then 1648.75 for IT…and 1316.75 for LT).  Some people like to divide their long-term holdings into thirds and peel off partials as the primary trend line stops are hit.  The particular details of the strategy are less important than simply having a strategy and being prepared to implement it without hesitation when the time comes.

The trend is your friend–until it ain’t.  So far, there is nothing particularly bearish at all about this market, which has now achieved (and exceeded) all upside targets from the 566 low–but an eventual break (and hold) under the last higher ST low would start to raise eyebrows.  That is where the first sellers have their stops.

…my .02

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