New Range Envelopes Indicator in Stops and Targets

In my last post I showed how I use range envelopes to anticipate minimum targets for pullbacks in bull markets.  Stops and Targets has just added that feature to all analysis pages (yay!) and I think you all will really like the new functionality…

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Stops and Targets @ES
Stops and Targets @ES

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The range envelopes are now shown at the top of every analysis page (see blue highlighted rectangle in the image above).    There are three columns of information displayed…

Sort Order
The range envelopes are arranged by timeframe according to the current trending configuration.  In the example above for the S&P 500 Futures (futures symbol ES) the multitrend rating is currently BULL 10, which means the stop/reverse lines are ordered ST (short-term) over IT (intermediate term) and IT over LT (long-term).  That is a fully-trending bull market, as explained in the summary tab.

Range Envelopes
The second column shows the range envelopes.  The first number is the lowest low of the timeframe look-back period and the second number is the highest high.  So, using the example above we can see that for the intermediate timeframe the lowest low was 2485 and the highest high over the same time period is 2562.25.  That is valuable information to know once you couple that with the color-coding feature that is used.  There are four possible colors that you will see used on these range numbers.  In the example above you can see that the range high in all three timeframes is colored dark red.  When you see that color at the high then you know that a countertrend pullback is possible.  That is the case for ES above as we see a large overnight move down from the top of the range envelope.  The first downside target is the short-term range low at 2546.25.  That number has been hit already as I type and so now we watch to see if dip buyers will come in there.  If not, then the next range target lower would be the bottom of the intermediate range at 2485.  See how that works?

Last Range Signal
The last column shows the date of the last range signal.  In the example above all three timeframes showed a signal of a possible pullback at the open of the current bar last night.  (note that the old ‘last signal’ column for analysis alerts that used to be in the top section has now been relocated to the summary tab).

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ES Range Envelopes
ES Range Envelopes

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To help visualize the numbers from Stops and Targets I have included a chart in the image above showing the range envelopes plotted.  You can see that the rally pushed all three timeframes to a new high at 2562.25 and then once price crossed under the range top a new countertrend pullback was generated.

Using those range envelopes the analysis here for ES is: countertrend pullback from 2562.25 with first target of 2546.25.  If we don’t get a bounce there, then next stop lower would be the intermediate range bottom at 2485.  Pretty cool, right?

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Stops and Targets AAPL
Stops and Targets AAPL

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Just for fun, let’s take a look at a stock analysis example and put those range envelopes to work.  The screen capture above shows the Stops and Targets analysis page for Apple (symbol: AAPL).  Let’s take a peek at the range envelopes and put together an analysis using just those numbers and the last signal dates…

When I look at the range envelopes I immediately see the following:

  1. AAPL had a countertrend pullback signal in the long-term at 164.94 on September 1st.  The dark red color tells me the type of signal.
  2. That pullback was intermediate in strength and bottomed at 149.16 on September 26th.  Look at the range bottom for the intermediate range envelope and note that it is colored dark green, which indicates a rally above the bottom rail inside the range envelope.
  3. That rally went to 160.87 in the short-term timeframe where we again see a countertrend pullback indicated by the dark red color. It remains to be seen how that issue opens today but at the close last night we saw the signal generated.  If we do get a pullback then guess what the first target is?  Yep, the next target lower would be the bottom of the short-term range at 155.73.  Pretty cool.

So, let’s talk a little about the color codes for the range envelopes…

At the range high there are two possible colors:

  1. Dark red (shown in examples above), which indicates a possible pullback.
  2. Bright green, which would indicate a breakout above the old range high and new range expansion.  When you are long a stock this is the color that you like to see as it indicates a trending bullish market with higher highs.

At the range low there are also two possible colors:

  1. Dark green (shown in the AAPL example above), indicates a countertrend rally.
  2. Bright red, which would indicate a breakout below the range bottom and a range expansion to the downside.  When you are short a stock this is the color you like to see as it indicates a trending bearish market with lower lows.

Have fun with the new range envelopes.  They are not currently integrated into the analysis algorithms–but will shortly be used to move the stop/reverse lines, which can change the multitrend analysis configuration in some instances when the next update comes.  For example, in the ES example above the current stop/reverse lines are at 2016.25, 2414, and 2485.  The new stop lines (from the range envelopes) would be 2414, 2485, and 2546.25 at the current time.  So, as you can see, that will make a much more responsive multitrend rating system and will help lock in much more profit on trailing stops when a sharp reversal starts.

This transition period allows long-time users to start adjusting their stop placement strategy and to get used to the new stop/reverse support levels before the full software update takes place.  If anyone has any questions of a general interest nature on the range envelopes feel free to send me a note using the ‘send comments’ link at the top of this page and I can answer those here in future posts–or you can direct more specific questions and comments to Stops and Targets directly through the help ticket system in your user settings at Stops and Targets.

I really like the new range envelope integration a LOT.   🙂

…my .02

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S&P 500 Futures Range Envelopes

I thought you might find it interesting to look at the anatomy of a trending market from a different perspective.  The charts below show what I call ‘range envelopes’ for the three major timeframes.

First I will break out each individual timeframe and then when your eyes have been trained for what to look for then I will show a layered chart and you can see then clearly how they interact with one another–which is the underlying premise of Stops and Targets…

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S&P 500 Futures LT Envelope
S&P 500 Futures LT Envelope

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What you see in the chart above are daily candlestick bars with the long-term range envelope superimposed as green (support) and red (resistance) lines.  That envelope represents in real-time where a minimum pullback would have to go to meet the condition to potentially trigger a new long-term pivot, which is how Stops and Targets sets the stop/reverse lines.

A bullish trend may be defined as a series of higher highs and higher lows.  In a trending bull market price tends to ‘push’ up against the top rail and concurrently ‘pull’ the lower rail higher.  On the chart above you can see an excellent representation of that bullish ‘stairstep-up’ pattern since November of 2016.

Now let your eyes take in the top red rail of the envelope… Do you see how there are NO steps down, only stairsteps up?  This is a powerful trending bull market–and has been since the last sideways consolidation (wave 4 pullback), which ended in March of 2016.

You can spot the pivots easily by looking for the long flat price plateaus.  On the chart above the last green line plateau of sufficient duration to create a pivot low was way back at 2016.25 (set at election night plunge to a low on November 9, 2016).

Take a look at the Stops and Targets summary tab for ES futures at:

https://stopsandtargets.com/members/futures/es.html 

…and you will see that the  long-term stop/reverse line for ES is currently sitting at that same 2016.25

Although there are a couple of red plateaus on the long-term chart, neither of them had either sufficient duration to qualify as a long-term pivot high.  The last long-term pivot high occurred way back in November of 2015 at 2065.50!

Another way to interpret the range envelope chart above in Stops and Targets lingo would be… “the current minimum downside target for a long-term pullback would be 2414″.  Those of you who read my ramblings here have probably seen me write about ‘minimum pullback targets’ many times in the past.  This is where and how I get those targets.  Usually, I am pointing out a real-time reversal target when I do so.  The last time I did that here for the long-term timeframe was at the November 2016 bottom.

 

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Now, just for fun, let’s take a look at what a trending bear market looks like using the same  range envelopes…

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S&P 500 Futures 2000-2002
S&P 500 Futures 2000-2002

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Do you see the difference between a bull and bear market now?  Lower highs and lower lows are clearly shown where the bear market was trending down on the chart excerpt from 2000-2003 above.  Bear markets have a different personality than bull markets and a clever observer will be able to quickly pick out the subtleties on the range envelope chart above in comparison to the current bull market.  But the main point to take away is that we are in and have been in a powerful bull market since the turn in 2009.

Bottom line is that until we see a poke under the range envelope that does not immediately recover then we can expect the bullish paradigm in place since 2009 to continue.

Now, with that all said, the market is currently at the top of the channel and so we need to be diligent about watching for the beginning of a plateau on the red line.  When a pullback starts it will begin by breaking under the previous day’s low and as I mentioned in a previous post, the pros like to trail buy stops (counter-trend bear stops and reversal buys) above the previous day’s high once the lower high/lower low price pattern starts.

Normally, it is a fool’s errand to short a powerfully trending bull market and I certainly don’t recommend that–but the reason I am pointing out unusual scrutiny of the current range top is because ES has reached a very long-term projection target for the wave 5 endpoint–and so now we want to be a bit more aware of any sell signals we see–especially if it is accompanied by massive numbers of top spotter signals.  Massive being loosely defined as high triple digits of spotter signals on the Russell 3000 and unanimous or near-so unanimous on the indexes and index futures.

So, why is shorting a powerfully-trending bull market usually a ‘fool’s errand’ you might ask.  Think of it this way.  With the market at a new all-time high every single prior long entry in this market, no matter how disastrous it might have seemed at the time, is now profitable!  Consequently, every single bearish trade entered in the same span of time is now a loser.  Sure, there have been a few tradable opportunities on the downside (see the red line plateaus on the chart above) but you had to be almost perfect on entry and exit timing to make those work.  In a trending bull market, everyone looks like a genius at new highs and so confidence and complacency ensues.

The trick is to keep most of those gains when it ultimately starts to head south, and that is the point of this mental exercise.  If/when it starts going badly I’ll be right here to diligently point out the first cracks in the foundation.  Don’t mean to scare anyone–but the conditions are right here for a correction in the near future, so we had better all be paying attention if that happens–especially as most are likely feeling pretty content and complacent as they look at their brokerage statements.

Next, let’s take a look at the shorter timeframes for ES using the same technique…

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S&P 500 Futures IT Range Envelope
S&P 500 Futures IT Range Envelope

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The chart above also shows daily candlestick price bars but this time with the intermediate range envelope superimposed as dashed red and green lines.

Unlike the first chart at the top of this page (where there have been no long-term pullbacks since November of 2016), there have now been two tradable pullbacks to intermediate support in the same period.  You can find those pullbacks to support by looking for the two ‘notches’ in the bottom green stair-step pattern.  Those pullbacks to buy signals occurred in March and August of 2017 (with a near miss of support in late June).  Preceding each of those support buys was a pivot high plateau in the upper red line. Do you see how that pattern works now?  Top to bottom for the pullback and then right back up to start pushing the top range line higher as the bull resumes.  The pokes under support were quickly reversed and great buying opportunities in the larger trend.  The intermediate pullbacks were sideways/down consolidations and never turned the intermediate trend bearish.

Take a look again at Stops and Targets’ analysis page and you will see that the stop/reverse line for the intermediate timeframe is currently located at that second dip to 2414.  That was the last higher intermediate pivot low.  Pretty cool, right?  Starting to see how this all works now?

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S&P 500 Short-term Range Envelope
S&P 500 Short-term Range Envelope

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Next, let’s take a look at the short-term range envelope on the chart above shown as dotted red and green lines.  Things are a bit more chaotic at first glance but if you look closely you can see two short-term bearish downtrends (stair-step lower highs and lower lows) that fit perfectly inside the two intermediate pullback channels.  Notice also the telltale three-step corrective moves in those pullbacks.

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S&P 500 Range Envelopes
S&P 500 Range Envelopes

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Now that your eyes have been trained…take a look at all three timeframes superimposed on the same daily bar chart above.  Do you now see how the three timeframes work together?  Pretty cool, don’t you think?

Here is my current analysis using the chart above and see if you agree…

This is currently a powerfully-trending bull market in all three timeframes.  Price is extended here however, especially in the long-term, and so we start to watch for the first possible separation from the range top with an eye to minimum pullback targets when that occurs.  These numbers can change daily, but as I type the next downside targets would be: 2534, 2485, and 2414.

Note that the long-term support will be at 2414 for quite a while since the recent intermediate pullback to that line will block it from moving higher until three months time have passed.  Intermediate support will also be stuck on a plateau at 2485 (see the last short-term pullback to range envelope support) for a couple of weeks.

So, guess where I think this would go if the rug were to be yanked right here by the pros?  Yep, that’s right initially to 2534 and if that support didn’t hold then down to 2485. If intermediate support were to fail then we could possibly get a poke under 2414 for yet another stop sweep/reversal on the weekly paradigm if they decide to go for the first long-term pullback in nearly a year.  And now you know why I said that 2414 was a very important line as it was being formed.

Hopefully you will find this post to be helpful in the future as I point out certain setups as they develop.

…my .02

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S&P 500 Futures

S&P 500 Daily Bars
S&P 500 Daily Bars

click image to enlarge

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The S&P 500 Futures Daily Bar/Range chart is shown above.  So long as ES closes above 2485 today those will be the new trend support levels for IT (2414), ST (2485), and VST (2485).

As I pointed out previously, ES 2414 has been the key number over the past two weeks and it is now the hard deck for the weekly bar paradigm and will soon become the minimum pullback target for the long-term timeframe.

Next I will be watching for a day where the close is less than the previous day’s high.  In today’s case that would be a close under 2517.75.  If/when that happens the formula for aggressive professional daytraders will be to sell subsequent breaks of the previous day’s low with a trailing stop at the previous day’s high.  That is a counter-trend trading strategy used to play the pullback inside the range envelope.

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S&P 500 Futures Monthly Bars
S&P 500 Futures Monthly Bars

click image to enlarge

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We have now reached the five wave extension target from the 2009 low that I have been displaying here for years (2513.25 adjusted to the December contract pricing)!  That’s not meant to be a pinpoint target–but rather a ballpark figure and we have achieved the price component but are early on the time axis (see chart above).  But nonetheless, we are now here for at least minimum price projection.  That target number probably seemed laughably unattainable to some folks back when I first started talking about it–but here we are!

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S&P 500 Futures Weekly Bars
S&P 500 Futures Weekly Bars

click image to enlarge

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Eventually, the pros are going to head back down for another stop sweep/reversal play–possibly under the new paradigm hard deck at 2414 that I pointed out in my previous points at the recent spotter bottom turn (2515.75 September contract pricing).  It’s what they do… and when it happens, it will be the tenth time in the sequence since the 2009 bottom and has marked perfect buy points in almost every occurrence (see weekly chart above for previous occurrences–only exceptions were wave 2 and 4 pullbacks to double bottoms).

The pros will want a running start at a long-term pullback it when it eventually comes…

So head’s up as we move forward after the tag of the VLT extension target at 2513.25.  There are lots of BIG gains to be protected now–so it is a good idea to start thinking about your profit-taking strategies to keep from giving too much of that back when the inevitable pullback comes.  Most retail investors will sit frozen in shock when the selling starts and typically those guys won’t sell until near the bottom of the move (please see points 1-9 on the chart above).  The pros are good at what they do…very good.

First order of business for us is to watch for the very first possible tiny sign of weakness, which in this case will be a daily close that is under the previous day’s high.  Once that happens, we’ll take it from there and try to stay on top of any developing major pullback early in the cycle.  We could also see massive numbers of spotter signals develop once a top comes.  So, that is the focus going forward as we all get to enjoy those fabulous green numbers in the portfolio–but, as always, caveat emptor. 

…my .02

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