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…
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…
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.
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).
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?
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:
- 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.
- 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.
- 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:
- Dark red (shown in examples above), which indicates a possible pullback.
- 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:
- Dark green (shown in the AAPL example above), indicates a countertrend rally.
- 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. 🙂