There are undoubtedly quite a few traders out there who are confused about the current market configuration–so let’s take a quick peek at the S&P 500 Futures at Stops and Targets (see screen capture above) to get the lay of the land…
Start by looking at the yellow highlighted area in the screen capture above, which describes the current range envelopes. As always, look at the ‘last range signal’ column and find the oldest date first. In the example above that is 29-Jan-18. Next, look to the left of that date and note three additional data points on that line: 1) the colored price (in this case 2,878.50), 2) the timeframe (long-term) and finally, 3) the colored trend configuration arrow (in this case ↔ ).
Next, find the second oldest date, which is 06-Feb-18 and then finally the newest date, which is 16-Feb-18. That date progression tells you everything you need to know.
Let me put that in plain English to illustrate how I would present the current market conditions to an enquiring client if I was their broker…
The broad market showed a long-term countertrend sell signal on 29-Jan-18 at 2,878.50. We next got an intermediate counter-trend buy signal at 2,529 on 06-Feb-18 that rallied to a short-term counter-trend sell signal at 2,754.75 on 16-Feb-18. All three timeframes are now rangebound (NOT trending) with a bullish bias in all three–so long as the price stays above 2708.50.
See how that works?
Now let’s take the analysis one step further while staying on the same analysis page…
The current Multitrend Rating is Bull 9, which indicates a resumption of the bullish uptrend after a deep pullback and subsequent rally. If an initial entry here is successful, a trade from this classification will often quickly morph into a fully bullish BULL 10 rating. This is often an excellent place to rejoin an existing long-term bull market at the first opportunity to buy above trend resistance in all timeframes.
And if I wanted to really show off I would add…
A Bottom-Spotter signal was generated February 6, 2018 at 2,529.00 and confirmed February 15, 2018 at 2,699.75. Price has advanced 7.4 % since. The intermediate timeframe is currently in play…
Then I would open the intermediate tab and start reading…
Price is currently inside the ideal buy zone between 2708.50 to 2751, so there is a possibility to try an entry here with an initial stop set at 2661.25 and an initial target of 2878.50 (+6%), which is good trading discipline for a 3:1 gain to risk ratio. If price dips under 2708.50 then the range bias would flip bearish and of course, a move under 2661.25 would stop out (-2%).
Fun Fact: Stops and Targets was originally created to be used by pros at full-service brokerages to advise their clients–and yes there are sharp brokers out there using it for that purpose. There are also many extremely savvy self-guided investors who have decided to use Stops and Targets to cut out the middleman in their portfolio management.
Now, what is really the hot tip (in my opinion) is to combine the cold hard logic of Stops and Targets with the intellectual curiosity of a sentient human. I’ll have to substitute for an actual sentient human in the following example, but here is an example of how I cross-reference Stops and Targets with my own charting to come up with my personalized take on the current setup…
click image to enlarge
The daily bar/range chart above helps me to visualize things better. I have the range envelopes plotted using three shaded rectangles and I also have the stop/reverse lines plotted. So, here is my take…
The selloff that started with a Top Spotter at 2878.50 terminated with a Bottom Spotter at 2529 that correlated with a bounce off long-term support at 2558.25. That initial bounce was tested with a double bottom three days later and THAT second test of 2558.25 was the perfect long-term buy point (in my opinion). I pointed out that long-term buy at 2558.25 here in real-time in my post on February 6th. That buy is now up >150 points and life is good for those who are onboard.
(Bonus: The Russell 3000 Bottom Spotter signals that came in later on February 9th provided plenty of individual trading opportunities.)
Now we are near the middle of the long-term/intermediate trading range [(2878.50 + 2529)/2 = 2703.75] and this is an area where many traders can get chopped up. Yes, there is a potential trade here at the BULL 9 setup but it is not nearly as attractive (in my opinion) as that perfect buy at 2558.25 since this trade is in the middle of the trading range.
We’ll see how it goes here but this market is presently NOT trending (yet). The short-term trading range is in play and that means there is wiggle room all the way down to 2627…if the 2708.50 and 2701.75 stop/reverse lines don’t hold on this short-term pullback.
So, if you are in long at the bottom then stand by for an upcoming clue in this area. It will likely take a minimum of five more trading days to potentially start the short-term trending bullish again (or conversely, a cross under the short-term range envelope bottom to start a bearish breakdown). If you are thinking of new mid-range trades then be careful (in my opinion) as it could take a while to resolve the very wide trading range created by the big corrective pullback from 2878.50 to 2529.
For now, let’s keep a close eye on the short-term range envelope boundaries that will be narrowing in the coming days. Bulls want to see an eventual breakout above–bears would be hoping for a breakdown below.
…my .02