ES Update

Let’s take a close look at updated charts, while we wait to see how this key test of the range top shakes out…

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Starting at the monthly bars…we can see the 4/20 touch of all-time high double-top resistance at 2100 and just how close ES is to the 2132.25/March 2016 time/price projection that we have been tracking here since the bear market bottom at 489.25 and the official technical end of the secular bear market back in September of 2012 when red trendline resistance on the chart above was broken out to the upside.

For a more detailed explanation of the time price projection methodology see my last ES Update post here.

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Zooming in to weekly bars to our ‘roadmap’ of the market since massive intervention started in 2009–we can see that the most recent stop sweep/reversal event occurred at point number 7, right on schedule.  What we are watching for now is to see if we will get the wave 5 breakout above the red trendline resistance similar to what happened after point number 3 back in December of 2011.

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Just to quickly refresh the Roadmap Paradigm for any new readers…

A bull market is best defined as a series of higher pivot highs and higher pivot lows–think of that as being like a set of stair steps climbing higher.  The pros have been using 4-bar pivots in their algorithms since 2009 in a very orderly and predictable controlled guidance of the market.  Each four bar pivot is marked on the chart above with a green dot for a pivot low and a red dot for a pivot high.

Since 2009 there have only been 7 instances where ES dipped has below the last higher pivot low.  Only twice has the market not immediately been bought after the stops were swept–at point numbers 2 and 6.  In all other instances the market was driven down to sweep stops and then immediately reversed into huge rallies.  I have pointed out each of those here in real-time.

The key point to understanding the weekly bar roadmap is that we will absolutely know when the paradigm finally ends by one very precisely-defined event. When we see a market that breaks below the last pivot low and is not able to rally back above that line, the paradigm in place since 2009 will be over.  At present, the last pivot low is at 1793.25.  So long as price stays above that hard deck on any pullback, the paradigm continues.  Obviously, the market is currently quite extended from that last pivot low–and so there is plenty of wiggle room to the downside to build a new higher pivot low, if the breakout attempt here falters. 

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In Wave Theory, impulse moves have five parts…  The first wave up finished on May 2, 2011.  The second wave down bottomed on 10/4/2011 at point 3.  The third, and most powerful wave, topped at 2100 on May 19, 2015 and then double-topped at the same number on July 20, 2015.  Wave four down bottomed on February 11, 2016 at point 7.  If the paradigm pattern continues–we would expect an eventual breakout above the red trendline resistance, which happened last week, to explode higher into the fifth and likely final wave to exhaustion in this carefully-engineered push from the bottom since 2009.  If that happens, what would follow next likely would be a unanimous Top Spotter signal from Stops and Targets across all the Index Futures and Cash Indexes and confirmed with huge numbers of spotters within components of the Russell 3000 Index (which represents 98% of all ‘investible’ US stocks).

So, here we are at the top of the range after a relentless push from the last major pivot signal at point number 7 that I pointed out in real-time at this post –and which was marked by the predictable panicked headlines across the media.

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The above image shows the weekly bars zoomed in more to show how the pros often use trident channels to guide the desired outcome.  Notice how price has recently been tracking the center of the channel as it has been held in place.

It is not uncommon for a major trendline breakout to be followed by a pullback to consolidate and regroup before the big upside move, but for the sake of clarity–let’s use the precise trendline breakout price of 2083 as a bull/bear line.  So long as ES is above that line it is wave 5, which is the terminal breakout wave to new highs and exhaustion where the pros will be shedding positions as the market nears the retail target for those wholesale buyers.

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Moving in one more order of magnitude to the daily bar/range chart…

Now the picture gets a little clearer regarding the touch of the range top at 2100 and the expected pullback from that resistance.  Notice here also how ES has been hugging the center tine of the intermediate-term (IT) trident channel as the pros first broke short-term and then intermediate trendline resistance (red descending trend lines) on the way to the big 2100 target.

The shaded rectangles on the chart above represent current trading ranges by timeframe: the lightest yellow is LT (1804.75 to 2093.25), then the next darker shade of yellow is IT (1793.25 to 2093.25),  then bright yellow is ST (2026 to 2105.25), and finally very-short-term (VST) is gray.

This morning’s pullback to 2070.25 was the absolute minimum required move to establish a potential new higher ST pivot low.  The pros are nothing, if not efficient, in their quest for maximization of profit.

The dark red dashed descending trident channel is built from the current last three ST pivots.  A break above that top rail would invalidate the channel–but if we get another move lower, the top rail of that channel would be what the professional bears use to move their trailing stops lower to lock in accrued profit.  Remember what I said in a previous post about the recent stop sweep of the bears above 2100.  There would seem to be no reason for the pros to go back above that line–unless their intention is a breakout and push to new highs.  A move above that dashed dark red trendline resistance would be a clear sign to get out of the way for any bears who are trying to game this on the counter-trend side.

Be aware of the ‘tractor beam’ center of the IT bullish trident channel.  That is what the pros are using to pin the market right now.  If we get a sudden break south, counter-trend bears could have something working–and the downside target would be the dark red channel bottom.  Otherwise, there is NO resistance above 2105.25 if we were to get a wave 5 breakout that sticks.

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And finally, moving in to the realm of very short-term traders, the chart above shows the same setup zoomed in to hourly bars to help fine-tune support and resistance targets.  Today’s action so far has been a run between VST support at 2071.50 and VST resistance at 2093.25, and is still being pinned right around the center tine of the IT trident channel.  It would take a breakout above the descending dashed red trendline to get the professional bears covering and to bring in new buyers looking for a momentum breakout above 2100.  If downside momentum were to resume, then a breakout under today’s low at 2070.25 would bring in sellers.  Otherwise, today has thus far been an outside bar where stops were taken above and below yesterday’s bar range.  The FOMC announcement yesterday is the thing that is currently being gamed and once the pros are done shaking nickels out of the day traders we should get a directional move out of this area using the numbers I mentioned early in this paragraph.

The last four trading days have been: 1) outside bar, 2) inside bar, 3) outside bar, 4) outside bar.  That is about as brutal as it gets for very short term traders!  This sort of action reminds me of a basketball center who has just pulled down a rebound and then violently throws elbows from side to side to push away other players.  The pros definitely want the ball here and they want small traders NOT to have the ball.  So, what do ya’ suppose comes next?  😉

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Note how this morning’s engineered takedown went right to confirmed support at 2071.50 on Stops and Targets, which is also looking for 2100 as the next upside target.  It’s all good for short-term bulls above 2071.50, but a move under that line would be a Stops and Targets counter-trend sell signal.

…my .02

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Tips and Tricks

I received an email earlier today from a trader asking for advice on how to find tradable short selling setups using Stops and Targets when the market is at the upper edge of a trading range.

He prefers to find bearish trending stocks that have some room to run to the downside but realizes that we could also get an upside breakout soon–and so he wants to find a way to dip his toes in on the short side, but with minimal risk exposure and a solid exit plan in case he is wrong.

I thought my answer to him might be helpful to others–so here are some suggestions on how to glean new trading ideas from Stops and Targets by using a couple of tips and tricks that you might not have considered before…

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Start by navigating to:  Signals Matrix–> Buy/Sell Signals

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The Signals Matrix Buy/Sell Signals page is organized to allow you to quickly jump to very specific types of signals (note that the screenshots in this post are from April 22, 2016 close since I wrote this earlier today).  

He wanted to pick out symbols that might do well in a pullback, but wisely wants to trade only in the direction of the symbol’s trend.  So, let’s select all active sell signals for Bear 10, which is the most bearish classification.  To do that, click on the blue number (there were 84 Bear 10 sell signals at the close on April 22nd) to open a new report showing all available Bear 10 sell signals…

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In the new report window, hover your mouse pointer over the column heading titled ‘Last Event’ (a tooltip pops up explaining what that column represents).  Next, click on the ‘Last Event’ column heading to sort the symbols by last event type.

We are going to concentrate on the ‘CR1″ signals in this example…

(note that not all setups are available on any given day and that there are no BEAR 10 CR1 setup signals on today’s [April 25, 2016] Signal Matrix)

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Hover your mouse over any ‘Last Event’ type and a new tooltip pops up explaining that particular signal.  In this case, we are looking for all stocks that have recently rallied back up to test first confirmed resistance at the short-term primary trend line.  If all works out well on the initial entry, the odds can be quite favorable for short-selling success…especially after a broad market rally to major resistance that has expected downside potential.  Oftentimes these type of trades can still work out even when you get the broad market read wrong.  Basically, we are looking to pick out the weakest stocks on the short side–and to sell short from just below the primary trend line.

So, why did I steer him to Bear 10 signals rather than looking for a Top Spotter signal, for example?  The answer is that although it is not intuitive for most people–the best odds for success come not from guessing at catching tops and bottoms–but rather from simply joining an already existing trend.  It is exciting to enter at the top on a short or the bottom on a long trade–and there is bragging rights to be had by saying ‘I caught the turn’…but in reality, the odds are far better for earning consistent profits by entering in a well-established trend, inside an ‘ideal entry zone’, setting appropriate protective stops, and then shooting for a predetermined target in a favorable risk to reward ratio setup.

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In the example above there were seven symbols classified as ‘CR1’ at the close.  As I type this post, the next trading day has closed–so let’s see how those setups did in a market where ES closed slightly down on the day at -2.25 points.

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SYMBOL % CHANGE
HTZ -4.36%
FOSL -2.68%
LAZ -2.28%
URBN -1.82%
GMT -1.50%
VFC -1.08%
WTI 5.41%

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Note that 6 out of 7 were winning trades!  …even on a day where the market finished barely down.  The personality of the trading day was an outside bar that gapped up on the open and then traded lower with a late recovery rally into the close.  Basically, it was a double stop run on both sides of the previous day’s trading range.

So as it turns out, the CR1 trades would have worked out nicely so far, with the exception of symbol WTI –which would have been stopped out for a small loss.  In the current situation, CR1 was the right call–but each new trading day presents a new puzzle to be solved.

In my opinion, it is best to look over the Signals Matrix the night before a new trading day…when it is possible to take one’s time to investigate thoroughly, any new potential positions.  Plan carefully the night before and then execute the well-considered trading strategy if things go as you expect on the next day.  You will likely see an immediate improvement in your own portfolio results once you take this approach.

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I want to show you another Stops and Targets trick that many people do not seem to be aware of…when you click on the blue NAME of any symbol (see the red arrow on the image above) something wonderful happens!  Try It!

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When available, every symbol is automatically linked to Reuters (or other sources, when appropriate), where every fundamental analysis tidbit you ever wanted to know about a company can be found.  That makes it quite convenient to do research on new symbols that you find in the Signals Matrix.  With a single click from within the analysis page–you can instantly read detailed company profiles, news, financials, dividend information, historical charts, and much more.

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So, let me make a couple of quick points here to Stops and Targets users about basic trading strategy guidelines that can greatly increase your odds of success…

1) Always know the broad market setup (reading my rants here regularly can help)

2) Try to establish your trades in the same direction as the broad market trend.  A rising tide lifts all boats…or alternately, sinks ’em!

3) If you are looking to establish a new position that is counter to the broad market trend (short in a bullish market or long in a bearish market)–it is always preferable to at least trade in the direction of the trend for that security, as was demonstrated in the examples above.

4) Stops and Targets is programmed to detect every possible signal type for every tracked security in 3 timeframes.  That sort of information overload can be overwhelming for many people–so consider keeping it simple.  If you want to be long–then pick from the strongest available stocks to buy (BULL 10) and if you want to be short–then pick from the weakest available stocks (BEAR 10).

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I would encourage all of you to consider poking around inside the Buy/Sell Signals Matrix each night after the end of day email is received–and then explore the different trade setups there by sorting the ‘Last Event’ column and then hovering your mouse as explained above to learn what each one does.  There is a time and a place for every signal type –and by tracking them and watching how they behave over time you can learn which one works best in which type of market conditions.

…my .02

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ES Update

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For any new readers who would like a detailed explanation as to why I choose to use the ES futures contract for broad market technical analysis, please be sure to read the topic on the navigation bar above that is titled ‘Why Futures Options?’

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Let’s start by describing the broad market setup…

The chart above shows monthly bars for the S&P 500 e-Mini Futures Options adjusted for continuous contract pricing dating back to 1999.

The descending red trendline marks the upper boundaries of the secular bear market that was in place from March of 2000 to the bottom in March of 2009.  Note that the bottom of the secular bear market coincided with the start of the current US presidential administration and also with the start of massive market intervention with the signing into law of the American Recovery and Reinvestment Act of 2009 and subsequent central bank monetary policy stimulus programs.

From the bottom at 489.25 (price adjusted for continuous contract pricing using the current June 2016 contract), price advanced +822 points over the course of 42 months until the descending red bearish trendline was finally pierced in September of 2012 at 1311.25

FYI: There were huge numbers of Russell 3000 Bottom Spotter signals generated at the March 2009 bottom (well over one thousand at the close on March 6, 2009!) and I did my very best to tell anyone who would listen or read my online commentary that an explosive rally was almost surely coming.  Unfortunately, the pervasive bearishness and pessimism was deep-rooted in those days and at that major bottom the news and noise was very dark indeed.  When the broad market turns, it usually does so almost instantly and that is a lesson to be remembered for the future.  When the next major turn comes, most will NOT believe…and it will almost certainly FEEL wrong when the signals come–so there is a significant advantage to having a purely logical instrument like Stops and Targets to sound the alarm.  For those of you out there who are pilots, a major market reversal can be a bit like experiencing vertigo–when it hits, all of your body’s internal senses will be screaming out false signals–but when vertigo comes you have to learn to trust the instruments and fight the urge to panic if you want to survive.

As I posted here on this blog in real time back at that trendline breach in 2012–the breakout of the old macro bear channel was a HUGE deal!  It signified the official technical end of the nine year old secular bear market!

As soon as that trendline was breached I created a time/price projection based on +822 points and +42 months…

If you look at the monthly bar chart above you will see two identical rectangles that represent the original time and price slope from the 2009 bottom at 489.25 to the secular bear trendline breakout at 1311.25 (+822)–and a second cloned rectangle that generated the projected time price targets of 2132.25 (1311.25 + 822) on March of 2016 (+42 months from September of 2012).

Now, after 42 months the market has attained 2105.25 of the expected 2132 target before the close of March contract.  The predictive accuracy of that cloned projection rectangle from September of 2012 is spectacular, with a margin of error of less than 3.3%

So, here we are in the bonus time on the time axis and still watching to see where the next tradable top will ultimately settle.  I have been speculating that we could eventually get a pullback to the rising green very long term bullish support trendline.  Just to make an important point here–that green rising trendline is to the current secular bull market what the descending red trendline was to the old secular bear.  So long as price trades above that trendline, this remains a secular bull market–though we will probably see cyclical bearish pullbacks within, just as we saw cyclical bull markets within the old secular bear.

To date there have only been two modest bearish episodes in the current secular bull market…the periods between May of 2011 to October of 2011 and recently between May of 2015 to February of 2016.  Both of those pullbacks ended with double-bottom stop sweep/reversal setups, which I also pointed out here on this blog in real-time.

So, here we are near the ES 2100 top of the channel that has been in play since May of 2015…

That ES 2100 line could be the key here in the near-term.  Why?  Because many bears who placed short trades anytime since May of 2015 would likely be using the all-time high as their ultimate capitulation stop.  The pros absolutely knew at the February 11th buy signal that all they had to do was continue to squeeze higher to shake out forced buyers as bears covered positions that went against them.  It’s like printing money for the pros–with guaranteed buyers at higher prices.  Once those forced buyers are exhausted from the squeeze, the market can either pull back to find support–or break into a new higher trading range. which will have no existing upside resistance.

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Zooming in to the hour bar/range chart…

We can see that ES did just what I speculated it would do in my last post, which was to break above 2100 and tag the top rail of the rising IT/LT bullish parallel channel (shown as a dashed green trendline just above 2100 on the chart above).  The local high is currently 2105.25.  If the squeeze is now completed then the pros would not seem to have any reason to go back above 2105.25 right away, unless the intent is to breakout higher into a new range.

Trajectory and support of the rally since 2/11 has been provided by the dashed light green ST bullish channel.  If that lower rail is broken, then we could see a new ST bearish channel develop–possibly using the provisional light blue trident channel.  That provisional channel would be erased if price breaks either above or below.  Nothing particularly technically noteworthy to the downside would develop until/unless VST support at 2058.50 is broken.  Price is currently a little extended from ST primary trend support, currently at 2026, so there is some wiggle room here for a pullback.

The key calendar event this week is the FOMC announcement on the 27th, though that may have been front-run by last week’s poke above 2100 to trigger the last bear stops.

Countertrend bears are okay under 2100, but there would be no compelling reason to stay short above that line–just in case an upside breakout is coming.

…my .02

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ES Update

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Starting with the weekly ‘roadmap’ chart…

ES has broken out above the LT/IT trendline resistance and is approaching the all time high level at 2100.

 

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Zooming in to the hourly bar/range chart we can see that just above the all time high at 2100 is where the bear stops are resting–and then just above that line is the top rail of the rising LT/IT parallel channel, currently near the 2103 area.

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Moving in a little closer to the hourly bars, we can fine tune the support levels below at 2093.25, 2088, and then the top of the old ST range at 2071.50.

 

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With the recent movement of the ST primary trend line back above the IT line–Stops and Targets is now back to a fully-bullish Bull 10 rating on ES for the first time since August of 2015.

Let’s see how it goes next with the bear stops above 2100 and then the top of the rising parallel channel currently near 2103.  FYI, the next FOMC announcement is scheduled for April 27th, so keep that in mind here at the top of the channels.

…my .02

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ES Update

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Yesterday we got the pullback into the IT ideal buy zone between 2008 and 2029.25 I pointed out in my last post.  That poke down to 2026 satisfies the minimal requirements for a potential higher ST pivot to form.  It will require a week of trading above 2026 for the new pivot to be established, of course, but yesterday was the technical pullback I was looking for.  Now we watch to see if yesterday’s low can hold for the next five trading days.  If it does, we will see the Stops and Targets ST primary trend line move above the IT primary trend line for the first time since December of 2015 –and that would change the multi-trend classification from Bull 9 to a fully-bullish Bull 10.  Of course, a move back under yesterday’s provisional low at 2026 any time during the next five trading days would negate the ST higher pivot setup and restart the cycle clock again.

ES is trading near the top of the LT/IT trading range between 1793.25 and 2093.25, where price has been meandering since November of 2015.  The resistance at 2065.75 I pointed out recently is the next ST hurdle higher–followed by descending trendline resistance at the top of the LT/IT bearish channel, which is currently near the 2084 area.  The big prize for bulls is an eventual breakout to new highs and the bearish capitulation stops resting just above the double top at 2100.

If the ST provisional low of 2026 fails to hold, the next target lower would be the bottom rail of the rising ST bullish channel, which is currently near the 2022 area.  A breakdown of that bullish channel could usher in a retreat back toward the middle of the LT trading range.  If that occurs, I will update the chart with a new bearish trident channel.

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The weekly bar chart gives a little better overview of the current situation.  We got the stop sweep/reversal buy signal at point 7 that I pointed out in real time at 1793.25 and price has since climbed relentlessly toward the red descending trendline resistance target.  A push higher that breaks out above that trendline resistance would confirm the fifth wave up from the 2009 bottom and a date with what I am thinking could be quite the top spotter signal if/when it eventually occurs.  We are very near the top of the trident channel and so there is a battle here between bulls and bears for control of momentum going forward.  Bears see the classic ‘M’ pattern on the chart and they will be looking to double down and press their bets on that descending red trendline resistance holding.  Bulls on the other hand are seeing a new bullish ‘W’ pattern forming–needing only a push above the trendline resistance to break the bears’ backs and run the stops above.  We’ll see how it all turns out…

…my .02

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