I have had a flurry of comments and great questions directed my way since the election. Mostly, the themes have been ‘where do we go from here?’ and ‘what’s the deal with the huge futures ranges on election night?’.
Let’s start addressing those questions by looking first at Stops and Targets’ automated analysis…
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As always, my eye starts on the ‘head’s up display’ chart at the right…
I see that on the primary trendlines that ST is over IT, and IT is over LT, and last price is over ST. That tells me that the market is in the most bullish ‘Bull 10’ configuration. I also see the intraday top spotter line, but so far that doesn’t mean anything until/unless it is still there at the close of the current bar trading session at 4:15 pm.
Next my eyes move to the signals block at the upper center of the page and I see that we have two ‘TODAY’ notifications…an intermediate ‘red’ signal and a short-term ‘green’ signal. So, the next move for me is to open the intermediate tab to see what that signal is all about…
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I see that the S&P 500 futures perfectly touched resistance at 2185, which created a ‘sell partials’ signal to take partial profits from the last buy signal at 2100.25. That’s an 85.25 point gain, so a trader who got in at the last signal (the stop sweep/reversal setup I pointed out here) is pretty darned happy right about now. Next I note where the ideal buy zone is located, which is shaded green on the chart and also shown as text at the right side under the ‘ideal entry zone:’ entry. The top of that zone would be the most likely target of a serious (intermediate) counter-trend pullback, if one were to develop.
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Next I open the short-term tab to investigate the other green TODAY signal from the summary tab…
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Hey, lookie there… it’s a bounce off short-term confirmed support at 2172.75 and price is inside the ideal buy zone. Since the risk/reward setup is technically ‘GOOD‘ we also see a suggestion for initial protective stop placement at the ‘risk/reward ratio:’ entry on the left side of the page. The Stops and Targets main idea here is to only enter trades where there is a 1:3 risk reward ratio. In other words, you can theoretically lose three times against one win if you have perfect trade discipline and still break even. Of course there are always slippage and trade costs to consider–but you get the general idea… trade with the trend, manage risk, and take profits along the way is the theme that seasoned pros adhere to.
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So, at a glance and with two tab pokes we now have the big picture firmly in hand for the S&P 500 futures options. It is currently a fully bullish market with a touch of the top of the range (also all-time high) and with some profit-taking back to short-term support.
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Let’s now compare what Stops and Targets is saying to my charts and see if it all agrees and also if we can pick up any further subtleties….
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The trading ranges all line up. The lightest yellow shading is the long-term range and we can see that it is indeed in breakout mode since 2077.75.
The next darker shading is the intermediate range and we can see illustrated exactly what I speculated would happen before the election and that is a run of the stops on both sides of that intermediate range. We got the stop sweep/reversal at 2100.25 and then the silly overnight election bar made that a double sweep. Now we are tapping on the door of the last bearish stops that are no doubt sitting just above the all-time high at 2185 (today’s high, so far).
The bright-yellow-shaded short-term range along with the gray-shaded very short term range are both ridiculously wide due to the 138 point wide bar from election night. Eventually, we would expect a VST pullback and then a ST pullback in order to set up higher pivot lows. The touch this morning at intermediate resistance was the first potential spot for that pullback to occur, but it’s always a good idea to have a look at one more place when you are dealing with the pros…
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Click on the image above and the economic calendar will open in a new tab in your browser. Pay special attention to tomorrow’s lineup.
Tomorrow is a big day for the FED, and you know how they like to puff out their chest and flex their market-controlling muscle, especially when the queen herself is set to speak. And there is that Fed Balance sheet thingy at 4:30 pm. Are you catching my drift here?
And last, but certainly not least…Friday is November options expiration day. Uh huh! Yep, and guess which side the pros are undoubtedly positioned on?
Which brings me to my answer to questions on the meaning of the wide election day bar. It is my thesis that the pros were all-in speculating that Hillary was going to be elected. I think they were caught on the wrong side of the market and had no choice but to step in and juice the market after the natural reaction of real traders was to sell. The pros HAD to save their positions, and comically, they also HAVE to send the market up on the President-elect Trump news. That is definitely NOT what they wanted to do, but by letting the market initially sell off and then saving it before the cash markets opened that was the best they could do to send a signal while not hurting themselves.
So, in conclusion, this is all playing out just have I have been speculating on for a very long time now. The only thing missing, and the cherry on the top, would be a push into new all-time highs with a massive bearish capitulation that would be signaled by unanimous top spotter signals across the indexes and supported by huge numbers of Russell 3000 issues. Really…could it be that easy? Maybe (but probably not). We’ll see what happens if/when we get into new highs territorry. For right now though, we have some profit taking at the boundary and then tomorrow we get the royal proclamation from folks who are no doubt VERY uncomfortable with the idea that a new President might just want to take a little look at the books.
For those of you who want to know if there is an additional risk for swift downside due to the wide election day bar sweeping away support–remember that all happened overnight when the cash markets were closed. That anomaly doesn’t even register on the ‘real’ market. As I have been saying for some time now…the key hard deck support number is ES 2100.25 for the current paradigm that has been in play since 2009. I would expect the eventual formation of a higher short-term pivot low, since the current range is so wide but yes, these are indeed exciting times and it will be very interesting to see what happens as we approach the end of the worst Presidential administration in American history and watch closely to see how that affects a great, but completely engineered, stock market rally since 2009.
…my .02
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