FOMC Today

 

Today, starting at 2pm ET the FOMC will take center stage.  Most analysts are expecting a rate hike of 25 basis points.  That along with the forecasts and Fed Chair press conference at 2:30 could be market-movers.

As usual, the markets have been pushed to a pressure point just ahead of the announcements.  Today’s pressure point comes at the expense of early-to-the-party bears who are being squeezed hard into the announcement.  As always, expect possible silliness around the announcement time–and then feints and counter-feints after the fact.

Yesterday’s Alabama special election results were undoubtedly a savage body blow to the Trump administration.  Many are likely wondering if a series of interest rate hikes could be the follow-through punch that starts to derail this amazing rally.   If Trump’s MAGA plan looks to be in trouble going forward–the market could be in for some tumultuous times ahead.  I really like President Trump and especially his economic policies, and have taken a huge amount of grief for admitting that–but even I am starting to wonder if he can survive a sustained and coordinated attack from all of his enemies–coupled with the infighting and outright treachery from those in his own party who should be on ‘his side’.  If the globalist forces ultimately defeat Trump then this market might indeed crash–as the uncorrected >32% gains could be given back in a big hurry if the optimism that is driving the advance wanes.

 

 

With that all said, this bull market continues ‘climbing the wall of worry’ and is again at new highs, as I type.

Over the years I have collected a LOT of bearish friends and some of you have been talking to me lately sensing logically that ‘what goes up ultimately must come down’.  Yes, that is true–but a bearish market, once it starts, must first cross UNDER the Stops and Targets stop/reverse lines.  For the S&P 500 Futures, which are my broad market benchmark of choice, those lines are currently at 2622.75, 2558.25, and 2487.75 (see screen capture above).  Don’t worry, I’ll hop into my bear analysis suit when the time comes.

Let’s watch and see what happens today after the FOMC does its thing starting at 2pm.  I also watch with great personal curiosity to see what President Trump will do next.  He has managed to flip the table on every single previous coordinated Globalist/Uniparty attack.  My question going forward is can he do it yet again… or was his administration perhaps mortally-wounded yesterday with the jackals and hyenas now circling for the kill?  The implications for the future of this bull market could be considerable.

…my .02

 

 

 

December Futures Options Rollover

Stops and Targets S&P 500 Futures Options
Stops and Targets S&P 500 Futures

Futures Options have rolled over from the December 2017 to March 2018 futures contract with a difference of +2.75 points from ESZ17 (December) to ESH18 (March).

All previous chart numbers have been adjusted to reflect the new contract pricing—so, for example, the intermediate-term primary trend line from the expiring December contract at 2555.50 now becomes 2558.25, and so forth.

 

I have received several private messages recently that are all plinking around the edges of the same questions…  Those questions are basically, when will this meteoric broad market rise finally run out of steam and start to move back the other way…and when it starts, how will we know?

As many of you long-time readers know, I am equally ‘bear and bull-friendly’ as an analyst, depending on the market structure.  You won’t ever see me cheerleading for bullish positions in a bear market–or for bearish positions in a bull market.  I have learned the hard way (many times) over the years what it means to miss a turn and to be stuck on the wrong side of a trade as a market moves against my positions.  Until you actually feel that pain and experience that hopeless despair–you really won’t fully ‘get it’ as a trader.  The losses and mistakes bring about a seasoning that only experience can provide–and that experience, when properly channeled, can bring about a solemn resolve to never make that mistake again.  The simple fact is that when the market moves, or more correctly (in my opinion) ‘is moved’, it is the most nimble to react to the change who are the ones that will take profits and preserve precious trading capital.  The really great traders learn to instantly switch sides without a second glance to what ‘was’ now focusing only on what ‘is’.

So, with that said… let’s take an objective look at the market right now and let me tell you exactly where and why I would change sides from bull to bear once this market eventually starts to correct…

 

The first thing I want to personally know is “what is the ‘big picture’ for the broad market?”.  I want to know the general direction that the market is moving to establish my overall bias.  To determine that I use the S&P 500 Futures Options…

 

S&P 500 Futures Options
S&P 500 Futures

 

The chart above shows range envelopes for three timeframes (March 2018 contract pricing) and is excellent for sizing up the big picture of a particular index or security.

Let’s start by defining our terms…

  1. My definition of a bullish trend is ‘a series of higher highs and higher lows’.
  2. My definition of a bearish trend is ‘a series of lower highs and lower lows’.

A trading range is defined as the highest high and lowest low for a particular look-back period.  At Stops and Targets that period is the professional industry standard of one trading quarter for long-term, one trading month for intermediate, and one trading week for short-term.  So, for the long-term timeframe the extreme low and high looking back one quarter (3 months) is 2458 and 2668.  The intermediate range is 2558.25 to 2668, and the short-term range is 2607.75 to 2668.

Now, with those terms clearly defined take a look at the chart above to see that price is above all three range lows.  When price is greater than the short-term stop/reverse line and short-term is greater than intermediate and intermediate is greater than long-term then we have a fully-trending bull market.  That is what Stops and Targets classifies as a BULL 10 rating.  What you see above is a classic definition of higher highs and higher lows in all three timeframes and price >ST and ST>IT and IT>LT.  No matter how you slice it, this is presently a fully-trending bull market–and in a bull market what we keep an eye on is the rising bottom channel for each timeframe.  In other words, “it’s all good for bulls ABOVE those stop/reverse lines”.

That bring me to the answer many are asking and that is ‘when will we know when this bull market ends?’.  That’s an easy answer… the trends change ONLY when price crosses UNDER those stop/reverse lines.  That’s it (in my opinion, of course)–and yes, it is just that easy.

Now with that ‘big picture’ background in place, many savvy countertrend traders here are noticing that this run up has gone without a significant correction AND there is a rough symmetry in time between the three shaded areas on the chart above.  In other words, based upon elapsed time it looks like the spacing is about right for another intermediate pullback.  Add to that a handful of recent confirmed Top Spotters and some bears are starting to wonder if something tradable is here or coming shortly.  Maybe.  If so, we’ll know soon if the current push higher after a three day series of lower lows stalls and reverses.  For the very short-term traders the key is watching for a sequence change.  As I type, the three day black candlestick trend of lower lows is being offset by a new daily bar higher low and higher high.  We’ll see how the day ends up but very short term bears are currently on the wrong side of the daily bar trend above 2637.25 (yesterday’s lower high).

Now, about those Top Spotter signals.  Yes, I saw those too but they weren’t unanimous across the indexes/futures and were only tepidly confirmed internally by Russell 3000 stocks–but a confirmed spotter signal is always something to pay attention to and the hard deck for a confirmed Top Spotter to be invalidated is currently at the 2668 range top.

For me personally, I don’t think it is generally worth the risk to try to pick tops in a strongly trending market.  As I mentioned in the opening paragraph–once one has accumulated a sufficient number of scarring life experiences by being trapped on the wrong side of a trend it just makes much more sense to trade WITH the trend and to sit out the ‘hero’ trades.  For me, so long as price is ABOVE the stop/reverse lines (which are equal to the range bottoms in a trending market) then I don’t even consider the bearish side.  Once price drops under the stop/reverse lines then my personal bias will change too.

If we are going to get a tradable pullback from this configuration then the thing to watch for countertrend traders is the previous day’s low.  Bears (who are trading on the wrong side of the current primary trends) will enter trades on a break below–but will cover on a break above the previous day’s high–and that is what we are seeing here above 2637.50.

Top Spotters are a great early warning signal for a pullback, and generally speaking they usually attain the first target, which is closest (in this case, short-term) support.  Let’s keep an eye on the snapback leg higher here and see where it goes–and if we get selling again after the squeeze above yesterday’s high then watch the previous day’s low for the point where on a cross under the bears would take back momentum when the black box algorithms begin to sell.  A move back above the trading range top negates any and all bearishness, of course.

Trading ranges are currently all in ‘pullback mode’ underneath 2668 (see dark red color-coding at the range envelope highs at Stops and Targets in first image above), so let’s see how this all plays out.  The most aggressive traders are likely using 2637.25 as an intraday bull/bear line FYI.  Momentum is bullish above but would begin to switch to bearish below.

…my .02