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

 

 

 

 

 

 

 

 

At the closing bell on Friday there were 721 new Bottom Spotter alerts along with 23 Bottom Spotter confirmations.  That is a large number and potentially significant.  This is essentially the polar opposite of what we saw on January 16th with huge numbers of new Top Spotter alerts, which clued us in to the significant pullback that started on January 29th.

I won’t go into the nuances of Spotter Signals here, but for newer readers I strongly encourage reading the following help topic to fully understand what Spotters are and how they work:  https://stopsandtargets.com/help/#collapseThirtythree

 

 

 

click on image to enlarge

 

In my last post I explained that this takedown has so far been an almost perfect example of predictive analysis using a combination of Range Envelopes and Spotter Signals.  Take a look at the chart above and notice the cross under of the range envelope tops at the magenta colored down arrow.  There were initially some buyers at the first touch of the short term range bottom (2825.50) but that gave away after two days and we saw a steep selloff that blew right through the intermediate range bottom (2708.50)  and ultimately bounced at the long-term range envelope bottom (2558.25).  We had new Spotter signals at both the top and bottom (if the current Bottom Spotter alerts hold).

 

 

 

 

Let’s cross-reference the previous chart with a screen capture of the summary analysis for the same symbol (S&P 500 Futures Option) and focus just on the highlighted table at the top.  Note the dark red color on the range envelope high at 2878.50 dated 29-Jan-18.  That was the initial counter-trend pullback alert.  Next, note the dark green color on the short-term and intermediate term range envelope lows at 2529 dated 06-Feb-18.

At-a-glance that is read as: a long-term counter-trend pullback started at 2878.50 resolving to an intermediate (and short) term countertrend buy at 2529.

It doesn’t get any better than that when it comes to accuracy, so a big tip of the hat to the amazing algorithms at: https://stopsandtargets.com/

 

 

Now, with all that said, technically we are in a short-term bear market pullback to long-term support.  The next resistance above comes at 2667.75 and then 2708.50 (intermediate stop/reverse line).

The new Bottom Spotter alert signal for the S&P 500 Futures will be confirmed on a bar daily close above 2699.75.  That same Spotter alert would be invalidated on a move under 2529.

After today the short-term trend will officially start to trend bearish as the range envelope top passes under the stop/reverse line at 2825.50.  The short-term stop/reverse line will then begin to move lower each day as the range top drags it down.  So, the two range extremes to watch will be the long-term range envelope bottom at 2529 and the descending short-term range top (currently at 2831.  The current trading range will hold price action until one side or the other is ultimately breached.  See how that works?

Let’s see what the bulls can do with the ball here.  The long-term bull market is perfectly healthy above 2529–but if we get a plunge back underneath then bears would be back in business after a very long hiatus.

…my .02

 

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Let’s talk about Range Envelopes…

On the screen capture above I have highlighted the long-term trading range envelope.  Note the dark red color of the countertrend pullback warning starting at 2878.50 and then note the current bounce off of that range bottom at 2558.25 (along with countertrend buy signals at 2595.75 for both short-term and intermediate-term).

So what we have just experienced was an express long-term correction–from top to bottom of the long-term range envelope.  It’s pretty cool how that works.

 

 

click on image to enlarge

 

The daily bar/range  chart above shows the range envelopes plotted.  We got the counter-trend pullback warning on a cross under the top of the three ranges on 1/29.

There was some temporary support with three bounces off the expanding short-term range envelope bottom 1/30, 1/31, and 2/1…and then we got the first rug pull on 2/2.

On 2/3 the selling blew right through intermediate range bottom support at 2708.50 and then proceeded to take out the January lows and ultimately yesterday’s decline was halted by a bounce off of support at 2597.25, which is where the blow-off move to exhaustion started back in November.

In the overnight session last night the pros had some fun squeezing futures bulls back to October 2017 levels to set the proper level of fear before stomping on the buy button at the open, which of course triggered panicked short-covering.

The fast and furious opening rally this morning went straight to confirmed resistance at 2667.75 (and the bottom of the January range) before profit-taking set in (by pros selling into the covering bears).  As I type, we are sitting between support at 2597.25 and resistance at 2667.75.

 

I have had some interesting conversations the past few days from people asking my opinion about what is going on here.  My answer is that I am not at all surprised about this pullback because the market hasn’t had a correction of any significance since President Trump was elected.  Markets have to breathe and you can either take lots of small breaths or a giant gulp–but sooner or later this corrective pullback was definitely coming.

For me, the warning bell was rung back on January 16th when we had all of those Top Spotter signals appear.  That was (in my opinion) when the pros were quietly shuffling out the back door.  I believe in giving credit where credit is due and so I offer a polite golf clap to the pros for their deviousness in creating that last head fake higher after the huge number of Spotter Alerts.  I noticed that the Indexes climbed but internally there wasn’t much going on to reverse the Spotters–and as a matter of fact more than 1 in 3 of the Russell 3000 stocks still had valid Top Spotter signals in place at the actual top of this massive long-term pullback.

We are watching now to see if this bounce off long-term support will stick.  Today is pretty simple to evaluate… ES 2558.25 is the bull/bear line.  The pros took the stops underneath that line in the overnight session.  My reasoning is that if that long-term range envelope bottom was the terminal target of this engineered takedown–then there should be no further incentive to head back down underneath that line.  If, on the other hand, we get renewed selling underneath that long-term support at 2558.25–then something other than a standard corrective pullback could be unfolding.

If this pullback ultimately terminates at a bounce off the long-term range envelope bottom (which is also the long-term stop/reverse line) and we end up with a new Bottom Spotter also (assuming the day were to close positive)–then that is pretty darned impressive predictive analysis from Stops and Targets.

…my .02

 

 

 

 

 

 

The screen capture above from Stops and Targets lays out the big picture.  The Top Spotter at 2878.50 on January 29th was confirmed on a close under 2851.50 on January 30th.  Short-term trend flipped bearish under 2825.50, which has changed the Multitrend Rating to BEAR 1.

Next major support is at the rising intermediate stop/reverse line and there is short-term support at 2698

 

 

 

click image to enlarge

 

The daily bar/range chart above helps to illustrate what Stops and Targets sees, but I have added a couple of other elements to help visualize the big picture…

The green shaded zone shows the range for January (last monthly bar) and the yellow zone shows last week’s range, which is helpful to visualize where the stops are resting.  So far, this has just been a short-term pullback.  Even though it probably feels like a big deal, a correction has been long overdue.

The unknown presently is where the selling will stop and when buyers will come in.  So, let’s take a look at that from the perspective of an old reliable friend here… the amazing Weekly Bar Paradigm that has been in place since 2009 (note the line on the chart above at 2736.50)…

 

 

click image to enlarge

 

 

The chart above shows weekly bars with each 4 bar pivot high and low marked by small red or green dots.  What we are interested in are the four-bar pivot lows.  The last one that was built was way back at 2416.75 in August of 2017.  That line is marked on the chart above with a blue line.  This market has been on a tear since then and so it is highly unlikely that we will get a pullback to a stop sweep/reversal under that line–but for the first time since then…we are getting a pullback here that achieves the minimum depth to make contact with the bottom of the dotted green channel.  That channel plots the lowest low of the past 4 weeks and that channel bottom is currently at 2736.50…which is why I marked it on the daily bar/range chart above.  Under that target at 2736.50 is the zone where a new four-bar pivot low can eventually form and we are officially there with the low at 2733.

There is no need for me to go back through again this for long-time readers, but for newer followers of this blog just enter ‘paradigm’ in the search box to catch up on past descriptions of this amazing tool that I have been pointing out in real-time here for many years.  We have another potential setup this morning–and so here I am pointing it out.  The paradigm works by pointing out stop sweep/reversals under the most recent pivot low.  First we need a new higher pivot low and if we get that–then we start to watch for the next setup many weeks down the road, which would be the stop sweep/reversal under the new higher pivot low.  The last stop sweep/reversal was on election night at point number 9 on the chart above.

So, head’s up right here and let’s see what happens around this lower channel as we watch for a potential bounce.

…my .02

 

 

 

 

 

 

 

Here we are on the last day of what has definitely lived up to the promise of being a very exciting week…

 

click image to enlarge

 

Take a look at the last two bars on the weekly chart above.  Note that the current week is an ‘outside bar’ which means that we have both a higher high and a lower low relative to the previous bar.

Let’s zoom in to the daily bar chart for a closer look…

 

 

 

click image to enlarge

 

The yellow shaded region shows last week’s price range of 2802 to 2876.

Note that this week’s price action has thus far been a stop run at the top, with a weekly high just above last week’s high to squeeze out the bears–and as of this morning… a stop run under last week’s low of 2802, which squeezes out all bullish profit for the past week.

The charts above make it easy enough to see what the pros have been up to, which is taking full advantage of an extended market during a news-filled week.

Today the world awaits the FISA memo release, which could be the final act of the play for this event-filled week.  Let’s watch and see how price reacts once (if) that memo is released.

Keep a close eye on ES 2802 as the ‘bull/bear line’ for the rest of this day.  If this has been a double stop run then there would be no reason to hold price below that line once the bull’s pockets have been picked by the pros.  If, on the other hand, price cannot get back above that line and rally–then we would be looking for the next downside target of 2698 on a selloff.  Note that there is no support between 2802 and 2698–so the pros have to decide whether to save it here or to yank the rug.

…my .02

 

 

 

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