The screen capture above is taken from Stops and Targets and shows the Summary tab for the E-Mini S&P 500 Futures Option, which is the same symbol that is shown in the next chart that follows. To help with orientation, I have drawn an orange rectangle around the range envelopes section. The range envelopes correlates exactly with the chart below…
(click image to enlarge)
The chart above shows the S&P 500 Futures daily candlestick bars dating back to Election Day in November of 2016.
I have overlaid range envelopes for the three timeframes shown by Stops and Targets:
1) solid lines show the long-term
2) dashed lines show intermediate-term
3) dotted lines show the short-term timeframes
I have also drawn in three shaded areas on the chart above…
There have been three significant (long-term and intermediate-term) buying opportunities since November of 2016. That’s right… just three!
Those were perfect When to Buy opportunities…
-The green-shaded area shows the last long-term buy (right after the 2016 Election).
-The two yellow-shaded areas show the last two intermediate buying opportunities (April and August 2017).
In a previous post I talked about looking for the buy ‘notches’ in the envelopes. You can see them very clearly on the chart above. That is where a significant pullback retreats to the lower rail, takes the stops underneath, and then rallies.
The last long-term buy was on Election Day. Take a look at the Stops and Targets screen capture of the long-term analysis for the S&P 500 Futures:
See the trend change there on November 7, 2016?
Next take a look at the intermediate-term analysis tab…
See the last trend change on August 22nd (which correlates with the green buy arrow on the first chart)?
And just for fun, let’s look at the short-term analysis tab to see how it did…
Stops and Targets was dead on for the trend change again…and each touch of short-term support has been a buy since.
Range envelopes are a clever way of determining when and where to buy…and also when and where to sell a position. (In a bearish market that could be restated to say when and where to sell short and also when and where to buy to cover).
Take the S&P 500 example above as an example. On Election Night there was a huge futures slam down. That was likely the pros taking the stops and scaring traders at the very moment when they should have been buying hand over fist. Not to worry though, for those who missed the bottom–the first pullback to short-term support was a perfect entry and was never touched again on a pullback. Since November of 2016, the bottom of the long-term range envelope has not been touched even once–as it has locked in trailing stop profits from 2016.25 to the current long-term range envelope stop price of 2441 (December contract pricing)!
For intermediate traders there have been two pullback opportunities to buy since the November 2016 bottom spotter signal. Neither entry has been touched by a pullback since.
The range envelope chart holds a LOT of very useful information for those who are willing to peruse it carefully. Put that trending/range trading understanding together with Stops and Targets’ automated analysis and the current setup becomes crystal clear…
To my eye this is a powerfully-trending market and there is obviously nothing bearish about a market that has broken out to the upside of the range envelopes in all three timeframes.
When a pullback eventually starts, the first thing price has to do is cross back under the top rail of the range envelope. Counter-trend traders can then look to sell the first counter-trend sell signals in Stops and Targets if they are feeling particularly daring.
Next step in a pullback is a test of the lower channel rail. In a powerful trend it often bounces there (see the range envelope chart above).
I won’t even consider getting bearish, however, until price closes underneath the lower range envelope rail in any timeframe.
This has been a very powerful bull market, which makes sense (finally) due to the great economic news and renewed optimism.
I will be watching the color-coded signals on the range envelopes at Stops and Targets for the next clues.