Market Update

click image to enlarge

 

Each candlestick bar on the chart above represents one month in the market for the S&P 500 Futures.

The definition of a trend is higher highs and higher lows for a bullish trend–and lower highs and lower lows for a bearish trend.  To simplify identifying those trends on the chart above–let’s use 12-month pivot lows and highs (marked by green and red dots on the chart above).

Note that from the 2000 top to the 2009 bottom there was a lower high and lower low sequence to create a stairstep down.

Since the market bottomed in 2009, we have had two new higher 12-month pivot lows (see green dots)…but there have been NO new 12-month pivot highs!

Note that the bear market ‘officially’ ended when price broke out above the red descending trendline. As I posted here on my September 7, 2012 post –that breakout was a very big deal!  This bull market will officially end when price breaks under the very-long-term trendline support.  Price is currently extended a long ways from that support.

If you look carefully at the bullish pattern since the 2009 low you will see five clear wave structures.  The prices at the top and bottom of each wave are labeled.  Once we had wave four (down) complete at 1773.25 I was able to create a time/price projection for the approximate expected top of wave five.  The price component was 2521 and the time component was +26 months, which is April of 2018 (next month).  The euphoria of President Trump’s policy successes rocketed this market higher and consequently, price blew right through the price projection in October of 2017 to eventually stall at 2883.50 in January of 2018.  We are coming up on the original time component (April 2018) and so I thought I would throw this back out there one last time for introspection before I remove it from my charts next month.

There is one number above all others that matters going forward and that is ES 2534.  That is the bottom of the January plunge and the newest ‘hard deck’ for the amazingly reliable Weekly Bar Paradigm that we have been exploiting here since 2009.  It is also the location of the most recent Bottom Spotter signal and the bottom of the current long-term range.

If we were to get a sell-off that breaks under 2534 and DOES NOT RECOVER then the paradigm that has been in place since 2009 will change.  If/when that happens I will point out the initial stop sweep/reversal setup here in real-time.

 

 

 

click image to enlarge

 

Moving in to the Daily Bar/Range chart…

Yesterday’s powerful rally may suggest that the new direction is up from here–and if so the dashed light green trident channel on the chart above should contain any pullbacks.  However, the dashed red bearish trident channel also remains valid so long as price does not break out above the top rail.  We shouldn’t have to wait too much longer to see which of those two trident channels is invalidated.

 

 

 

This is a trading range, so watch the Range Envelope signals at Stops and Targets.  They have been amazing (see arrows on the daily bar/range chart above).

 

…my .02

 

 

 

 

 

Market Update

Friday was Quadruple Witching Day, which means that the recent options-related strangle on volatility could come off soon and release this market from a contracting range-bound market.  The pros likely were sellers of options that mostly expired out of the money for buyers.  That means probably not a lot of inventory to move post-expiration.  So, we could see some movement soon one way or the other to break out of this consolidation.

Since we are on new futures contracts (June), I thought it might be a good time today to take a look at the Big Picture by starting with monthly bars and then zooming in to the daily bars…

 

S&P 500 Futures – Monthly bars

(click on image to enlarge)

 

In the monthly bar chart above we can see the very-long-term configuration of the broad market.  The definition of a trend is lower highs and lower lows for a bearish market, which we can see under the red trendline from March of 2000 to the eventual bottom in March of 2009.  The definition of a bullish market is a series of higher lows and higher highs, which has been in place since that March 2009 low.  The green trendline defines support for the very-long-term trend.

The major takeaways from this chart are as follows:

  1. There is nothing bearish about this market from a VLT perspective and would not be until we finally see a break under trendline support.  The rising very-long-term trendline is currently near 2180 area.
  2. The current monthly bar (March 2018) is an inside bar, which means the present action is neither bullish nor bearish–but rather is consolidating inside of the January/February high-low range (2883.50 to 2842.25).

 

 

Checking in with Stops and Targets, we can see the same trading range (2534-2883.50) in the circled range envelopes section.

We can also see that the stop/reverse line is inside that trading range–so we know the market is not presently trending in the long-term timeframe.  (If the market were trending bullish, the stop/reverse line would be equal to the range bottom).

There is also a confirmed Bottom Spotter at the exact bottom, so for investors, all is good.

 

Next, let’s zoom in to a weekly chart so see the market from that perspective…

 

 

S&P 500 Futures – Weekly Bars

 

Last week, something important happened on the weekly bar chart shown above… we got a new higher 4-bar pivot low at 2534.  This adds the newest notch to our ongoing Weekly Bar Paradigm that has perfectly defined this market since the 2009 low.

To understand the Paradigm, you need to know that the pros have been keying on 4-bar pivots to set up stop sweep/reversal buys for the past 9 years.  In the chart above you can see the last 5 places where the stops were run under a weekly 4-bar pivot low and in 4 out of 5 instances those were PERFECT buy points for riding the bullish trend.  There is little reason to suspect that the next time it happens won’t be also.

The ongoing Paradigm remains in effect until we finally see a break under the last 4-bar pivot low that cannot recover above that line.

 

Here is a zoomed out look at the weekly bars showing the entire sequence…

 

S&P 500 Futures – Weekly Bars (zoomed out)

 

There have been nine times (labeled on the chart above) where the last 4-bar pivot low has been broken to the downside.  In every case except points 2 and 6 we saw an immediate reversal after stops were run under the pivot.  The two exceptions were actually what I would label corrective waves 2 and 4 in a giant impulse sequence off the 2009 bottom.  That is Perfect Elliot Wave stuff for those who are adherents.

At any rate, ES 2534 is now the new ‘hard deck’ for all savvy long-term riders of the bull market since 2009.  That number potentially becomes VERY important going forward–especially if we ultimately see another pro-engineered takedown to run the stops underneath 2534.  Wave 5 was extended beyond my original target–so it wouldn’t be surprising to see another move down.  Just keep that in mind as we watch to see how this present consolidation resolves.

Another option is to build a new higher 4-bar pivot low above 2534.  ES 2652 is the current minimum pullback target if that were to happen.

 

The major takeaway from the weekly chart is as follows:

  1. The new hard deck for the Paradigm has moved to 2534 at the most recent higher 4-bar pivot low.
  2. The current weekly bar is bearish on the open with a lower high and lower low and would remain so under 2745 (last week’s low).

 

 

 

Cross-referencing with Stops and Targets we can see that the intermediate term is currently range-bound between 2632 and 2807.25.  We can also see that the intermediate term is not trending presently (stop/reverse line at 2713.50 is inside the trading range and we also see  arrow, which denotes rangebound with bullish bias above the stop/reverse line).  Last signal here was a countertrend buy.

 

 

And finally, let’s take a look next at the daily bars/range chart…

 

S&P 500 Futures – Daily Bars/Range Chart

 

On the daily bar chart above, let’s focus on the short-term timeframe.  The bright yellow shaded rectangle shows the current range.  Note that price is testing the bottom of the short-term range at 2735.50, as I type.  If this market wants to go back up, then this is a short-term buy area after stops are run underneath.  If not, then the short-term trend will turn bearish on a close under that line.  So, that’s our bull/bear line on the day, obviously.

 

 

 

Checking in with Stops and Targets again–this time for the short-term timeframe (which is currently ‘in play’), we can see that (as I type) price is presently inside the idea entry zone.  The next upside target is at 2794.75 (where the last counter-trend sell signal was generated) and then 2807.25 (range top).

If price can’t hold short-term support here then the next target lower for bears would be 2713.50 and then 2652.

 

 

  • As I close out writing this post, price has now moved underneath the short-term stop/reverse line –and so I have inserted the screen capture above to give the bearish snapshot view of the present fight at 2735.50.

 

So, bottom line is that the broad market continues to wiggle around inside the shadow of the long-term (and intermediate-term) range.  The short-term trend has been trying to work higher here but we are at a test of support after the last counter-trend sell signal at the top of the short-term range.

That short-term support at 2735.50 is where the battle will occur today.  Price action is bearish below and bullish above.

…my .02

 

 

 

 

Market Update

 

Let’s take a look at the current broad market configuration using the S&P 500 Futures summary analysis from Stops and Targets as a proxy…

In the screen capture above take a peek at the range envelopes indicator at the top center (outlined in orange).  Next to all three timeframes, we see sideways ↔ green arrows, which tell us that the market remains rangebound (currently NOT trending).

Using the ‘last range signal’ dates trick, start with the oldest date and work forward to get the following range update… 1) Market started a long-term pullback at 2883.50 signaled on 29-Jan-18.  2) We next got an intermediate-term countertrend rally signal at 2535.25 on 06-Feb-18.  3) The latest signal is a short-term countertrend pullback at 2805.25 on 12-Mar-18.

So, here we are still inside the trading ranges and continuing to work-off the big pullback from 29-Jan-18 to 06-Feb-18.

Bias is up in all three timeframes above the intermediate stop/reverse line at 2713.50 as we continue to watch and wait to see when the short-term timeframe will eventually start trending again.  For the bullish trend to restart to the upside what we will need to see is price action that will eventually cause the bottom of the short-term range channel (currently at 2668.75)  to cross ABOVE the current stop/reverse line (currently at 2706.75).  The opposite is true to restart a bearish trend… the top of the short-term range channel would need to cross BELOW the short-term stop/reverse line.  What makes a market ‘trend’ bullish is a sequence of higher highs and higher lows–and vice versa for bearish trends.  See how that works?

For the short-term bullish trend to reassert, we will need another 2-3 days above 2706.75.

 

 

 

 

Let’s take a look at Stops and Target’s numbers plotted out on my charts to see things from a slightly different perspective…

I have color-coded the range envelopes using three degrees of yellow shading.  Light yellow is long-term, medium yellow is intermediate, and bright yellow is short term.  See how all three ranges are currently nested one inside the other?

The big trading range (long-term) was created by the takedown from the exhaustion top (Top Spotter alert) at 2883.50 on 29-Jan-18 to the bounce off long-term stop/reverse line at 2563.25 on 06-Feb-18, with a futures Bottom Spotter on that date at 2534.

As I have said here previously–that was the precise spot where bears should have covered and I pointed it out in real-time here on my 06-Feb-18 post.

I also pointed out the huge number of Russell 3000 Bottom Spotters at the double bottom on 09-Feb-18, which was where the pros undoubtedly loaded up on the long side.

 

For Spotter fans, take a look at this link to all active confirmed spotter signals.  Scroll down the Net% column and take a gander at the fats gains on the symbols that confirmed after -06-Feb-18:  https://stopsandtargets.com/members/signals/spotter.php?param=BSbuy

The symbols on that link above are your market leaders and it is a great source to find trading opportunities in a market like this.

 

So, that brings us to today…

Notice on the chart above that the rally off the bottom at 2534 stalled at 2794.75 on 27-Feb-18.  That set up a short-term pivot high and if we take another look at Stops and Targets’ short-term analysis tab, this is what it says there…

 

 

Stops and Targets is showing a partials target has been achieved at that same 2794.75 pivot.  So, it’s time to ring the register for sharp traders as we watch to see what happens here at this line of resistance.  Basically, what is happening here is a stop run above the pivot at 2794.75.  Above that line, pros knew they could find buy-to-cover orders resting from out of sync bears who shorted the last pullback to a bounce off the bottom of the short-term range envelope (along with momentum bulls who haven’t figured out yet that the market is still range-bound).

So here we are…a rally into profit-taking above 2794.75 is now experiencing mild selling.  It’s all good for bulls on any pullback that stays above the short-term stop/reverse line at 2706.75 –but if this initial selling were to accelerate, then the next target lower would be the rising bottom of the short-term range envelope.  Otherwise, if buyers step in after this profit-taking here then the next target higher would be the long-term range top with an eventual resumption of the BULL 10 rating.

…my .02

 

 

 

 

 

Futures Options Rollover

Futures Options have rolled over from the March 2018 to June 2018 futures contract with a difference of +5 points from ESH18 (March) to ESM18 (June).

All previous chart numbers have been adjusted to reflect the new contract pricing—so, for example, the long-term primary trend line from the expiring March contract at 2558.25 now becomes 2563.25, and so forth.

 

 

 

Let’s take a look at the current configuration of the broad market using the S&P 500 Futures Option as a proxy…

On the screen capture above look at the range envelopes area (highlighted with an orange rectangle).

We know that the market is presently NOT trending and inside a trading range due to the  arrows next to all three timeframes.

We can also use the last range signal dates to see what is going on in each of those trading ranges…

  1. The first counter-trend pullback signal was generated at 2883.50 on 29-Jan-18 (long-term corresponded with a Top Spotter).
  2. The next signal was a counter-trend buy at 2534 0n 06-Feb-18 (intermediate corresponded with Bottom Spotter).
  3. The most recent signal was a counter-trend buy at 2652 on 02-Mar-18 (short-term).

 

Today we see price challenging the top of the contracting short-term range at 2739.50.  If price can poke out above and hold–then we should see that number turn bright green with a new range envelope signal as the short-term trend would break out above the present range.  On the other hand, if that range top breakout cannot hold then we could see range-trader sellers come in as the range continues to contract.  So, it’s all about 2739.50 today as the market continues to work to repair the damage caused by the big January 29th to February 6th takedown.

 

 

My chart above provides another way to visualize and reinforce what the previous Stops and Targets screen capture is saying…

Points 1-3 show the same signals as above, and the shaded rectangles help to illustrate the embedded trading ranges (light yellow shading is long-term, medium yellow is intermediate, and bright yellow is short-term).

In addition, I have drawn in trendline support and resistance to show the contracting price triangle.  That red descending trendline could come into play next if we get a short-term range breakout to the upside.

Let’s keep an eye on 2739.50 (short-term range top) today and see what happens.

…my .02

 

 

 

 

 

Market Update

There are two types of market conditions… 1) trending and 2) trading ranges.  It is VERY important to know which type of market condition exists at any given time…

Most ‘trading systems’ are designed to exploit one type of market condition or the other.  The problem with those trading systems is that a ‘trending’ system gets killed in a rangebound market–and a ‘range trading’ system gets killed in a trending market.  That’s why the vast majority of ‘trading systems’ don’t work over the long haul.

Stops and Targets is actually a trending system embedded in a range trading system with a spotter system thrown in for good measure.  It analyzes and adapts to the current conditions.  Let me show you how it does that…

 

 

The screen capture above comes from my post here on January 16th, which is the date when the first batch of internal top spotter signals warned that something was changing.

Take a look at the ‘range envelopes’ indicator at the top of the screen…

To the left of the range envelopes, you see green trending arrows    by all three timeframes.  Those up arrows showed that each timeframe was trending.  When a market is trending bullish, the stop/reverse line (trending component) is equal to the range bottom (trading range component) and that is what we see in the example above.

Note: The opposite is true in trending bearish markets when we see a red down arrow next to the range envelope.  In that case, the stop/reverse line would be equal to the range top.

 

Trending markets are wonderful things… because when a stock is at a new high in a bull market, for example,  everyone who is long that stock looks like a genius.  In a trending market one only needs to buy the dips and then hang on while moving the trailing profit stops up behind the move.  Protection of profits is easy when you have stop/reverse lines to use as guidelines for trailing stops.

 

At some point, however, all trending markets reach a point of exhaustion and then either correct or reverse…

 

 

For the current market, that point of exhaustion came on January 29th.  On that day there was a Top Spotter Alert in the futures (shown by the magenta arrow on the chart above).

So, there was Stops and Targets saying ‘hey, we have a potential exhaustion in this amazing trending market’.  That is the Spotter component of Stops and Target’s three embedded systems giving an early head’s up that a possible reversal was in the works.

That Top Spotter alert was confirmed the very next day as price dropped from the all-time-high at 2878.50 to a touch of short-term range support at 2825.50.  The market tried to bounce there for the next two days but on February 2nd short-term support failed and we got the first timeframe SELL at 2825.50.

 

Once the short-term sell was added to the confirmed Top Spotter we knew that the next downside target was the intermediate stop/reverse line at 2708.50.  Price wasted no time getting there–but the selling momentum was so strong that price blew right through intermediate support and turned that trend bearish as well at 2708.50.  Once that happened, the next target lower came into play, which was long-term trend support at 2558.29.

Price bounced right on cue at long-term support and we got a Bottom Spotter Alert on the poke below to 2529 on February 6th.  That bounce at long-term support along with the Bottom Spotter meant that is was definitely time to cover and celebrate for the nimble bears who sold the breaks at short-term and intermediate support.

We had the initial short-covering bounce followed by a double bottom at long-term support and that was the time for everyone to BUY at the bottom of the long-term range.  Technically, that was a short and intermediate term pullback to long-term support.  The pros wasted no time in getting the takedown job done–but corrections are necessary and normal in bull markets and this recent run-up had gone a very long time without backing and filling.

 

Now, let’s take a look at where we are currently using Stops and Targets in conjunction with my chart above…

 

 

Let’s focus in again on the range envelopes indicator at the top center of the screen capture…

Start with the dates to the right and go from oldest to newest and this is what that indicator is saying in plain English…

The S&P 500 Futures showed a counter-trend pullback at 2878.50 in the long-term timeframe on 29-Jan-18.  A countertrend buy signal was detected on 06-Feb-18 at 2529 in the intermediate timeframe.  After a rally we most recently got a short-term countertrend sell signal at 2789.75 on 27-Feb-18.

See how that works?

 

But what I really want to point out about all of this is the important change in arrow types next to the range envelopes.  Note that we now see sideways arrows  next to all three timeframes and NOT   green UP arrows any longer.  Notice also that the range envelope bottoms do NOT equal the stop/reverse lines anymore…

What we have currently is a rangebound (trading range) market.  So, naturally, what worked in a trending market doesn’t work in a range-bound market.  Now we are watching the edges of the trading ranges as this market recovers from that violent pullback from 2878.50 to 2529, which you will notice is the current long-term and intermediate trading range envelope.

The short-term range is currently dynamic, however, and that is what I pointed out in my last post.  The short-term was trending bearish from 2/5 to 2/15 which caused the stop/reverse line to follow the range top lower–but the rally crossed the top of the range and the bearish stop/reverse line at 2701.75, which ended the bearish trend and set up the current short-term trading range between 2682 and 2789.75.  That explanation might hurt your head a little but just look at the dotted short-term range lines on my chart above and you will see what I mean.

The short-term is trying to move higher and we see a higher high and higher low structure to the range envelope–but the key is the short-term range envelope bottom which is currently at 2682.  What bulls want to see next is for the short-term range to start trending again and for the range envelope bottom to eventually cross over the current stop/reverse line at 2701.75–but that can only happen if the current range bottom holds and price eventually heads back up to cross over the range envelope high.

The way to fine tune the read here is to say the short-term is currently rangebound between 2789.75 and 2682.  A countertrend pullback signal targeted the stop/reverse line at 2701.75 with the next pullback target being 2682.

So that’s where we are… currently in a rangebound market in all three timeframes.  We are now watching closely to see if the current short-term pullback can find support and then move higher–or alternately, if the short-term range envelope bottom were to fail then sellers would be back with a vengeance looking to next challenge the intermediate range bottom.

To understand the way range envelopes work it helps to know that the three major timeframes used by the pros are predicated by weekly, monthly, and quarterly cycles.  Therefore, the short-term timeframe is the lowest low and highest high of the past trading week, the intermediate is the lowest low and highest high of the past month, and long-term is the lowest low and highest high of the past quarter.

So, with that said we can see that because the low of the current daily bar has poked underneath the short-term stop/reverse line at 2701.75 it will be at least a week from now before we could see the short-term start to trend higher and then as a result start to drag that stop/reverse line higher as well into a BULL 10 rating.  Of course, if the range bottom fails then we could start to see a bearish trend begin in as little as three trading days.

Bottom line is that until we see a breakout on one side or the other of these ranges–this is a fully rangebound market and those range extremes are where the trading action will likely occur.

Today’s early low at ES 2698 is the bull/bear line right here (in my opinion).  If that low holds then we should see the short-term range envelope continue to narrow in a higher-low/ higher-high bullish pattern at the close today.

…my .02