On my January 22nd post I wrote the following in my closing paragraph…
Remember on these consolidations; first the pros bore everyone nearly to death, and then when least expected…whammo! I think we might have one of those deals coming.
I would say the past couple of trading days definitely count as a ‘whammo!’ 🙂
The pros pulled the plug and drove the market down through several support layers, the most important being the key ST primary trend support at 1809.50. That was where the ST trailing stops had accumulated and the key line that had to be crossed, and held, to flip the first major trend (short-term) bearish. Once that support broke, we saw only black hourly bars. The gap at 1802 was filled, as expected, and then price continued lower to tag the next target at 1786.25, which is near where price is currently sitting as I type.
This is exactly what it takes to re-energize the bears, who likely weren’t biting in the last sideways consolidation. As I have pointed out many times before, the pros need the bears to take the other side of trades to keep the game going. Those short positions represent guaranteed buyers at higher prices.
Now, that all said…the first shift in the fully-bullish paradigm has occurred with a break and hold under 1809.50 and the market is short-term bearish so long as price trades under that line. We have the most miserly series of a short term lower high and lower low–but now with the breakdown under 1809.25–we have a more substantial lower short-term low guaranteed.
Snapback counter-trend rally targets are 1809.50 and then 1817.25 (VST) as best candidates for the next lower ST high in the sequence.
The next key support level lower is intermediate structural support at 1754, and I will talk about that more in the paragraphs that follow.
Let’s take a look and see how this recent decline stacks up in the ‘big picture’…
The monthly bar chart above shows an inside bar for the month of January thus far. All of the monthly trading action has remained within the high low range of the December bar (1846.50 and 1754).
So, there is that key 1754 number I said we need to keep an eye on as the next major support below. If you look at the monthly bar chart above, you will see that the last time we had a monthly lower low was June of 2013 and the last before that was November of 2012. Another way to look at that is that 14 of the past 15 months have had higher lows–so clearly, that is a pattern in the paradigm that must be watched.
Let’s zoom in a bit closer using weekly bars and I would like to make that point more strongly…
The weekly chart above shows all of the intermediate structural lows since the 2009 Obama regime began, and they are marked as green dots. There have only been three ‘lower lows’ the entire rally! Two of those were stop/sweep reversal buys and only one, in August of 2011, was a tradable breakdown that led to a sequence of lower highs. Note the red resistance trendline that was broken in December of 2011. That was the last intermediate bearish structure!
So, if you are looking for a road map of the character of the market with buying tells vividly illustrated–this is the chart to watch. The pros, using tens of billions of dollars per month to manipulate the markets courtesy of ARRA, have left us a pattern to use to determine if and when the game has really ended.
Note that the last green dot is at 1754. Until/unless that trailing support is broken, the paradigm continues. If it is broken and recovers quickly–then we will have another stop/sweep reversal buy. If not, then professional bears can finally come out of hibernation after a very long rest.
Keep an eye on this weekly chart structure going forward. It represents how the pros have been doing it–and is a tell of their tendencies. As I mentioned previously, the odds continue to favor the long side plays in the intermediate term so long as these higher lows continue to be built.
Did I mention that 1754 is a very big number to watch? 😉