Market Update

 

In my last post I pointed out the contracting triangle (using green support and red resistance trend lines) just before the triangle breakout.

I also pointed out the higher low push sequence to watch for after the breakout to know when the foot comes off the gas for the pros.  Two days after the breakout bar we got the last higher low at 2724.25 and there hasn’t been a higher low in the 11 trading sessions since.

That triangle breakout went into the buy stops (late bears covering and early momentum buyers)  just above 2718.50 and then pros consolidated profits there from the stop sweep entry at 2591.25.

Overnight, we got a S&P 500  futures push back under the 2704.50 short-term range bottom.  We also see the fledgling start of a possible opposite downward push sequence with lower highs the past two trading sessions.

So, having consecutive black bars with (so far) lower highs and lower lows–let’s talk about two possible outcomes in the very short-term…

If the pros continue to develop a lower high push sequence then bears would not want to see a move above the last lower high (currently 2731.75).  If today ends up as a black bar then tomorrow professional bears will lower their trailing stops to the last lower high in the sequence (which would be today’s high barring an outside bar).  The next target lower could be a ‘back-kiss’ of the descending trendline extension, which is currently at the 2670 area.  That’s a tactic that the pros often use after a key breakout to shake off traders and to push them to the opposite side of their trades (creating sellers when they wish to buy).  If that happens then watch for a bounce near the back-kiss.  If we get a push down and the back-kiss bounce doesn’t develop, then the next target lower would be way down at the stops under 2591 (and a possible support trendline touch)–but we’ll likely know when the pros are done pushing when the lower high sequence stops.

If, on the other hand, a previous bar’s last lower high is broken either today (currently that last lower high is at 2731.75) or at any time later in a sequence then bears will cover and reverse.  So, maybe something is brewing here–or maybe nothing, but those are the signs to watch for as we continue to track the aftermath of the contracting triangle breakout and to decipher the pro’s push intervention.

Price continues to be rangebound in the long-term (2552 to 2807.25) and intermediate (2591.25 to 2741.75) timeframes–but we would have a bearish downside breakout under 2704.50 in the short-term (or, conversely, a bullish range breakout above 2741.75 if this fledgling push down reverses after a simple stop sweep under the short-term range bottom).

Bottom line… under 2704.50, watch to see if a lower high push pattern develops.  If so, then next watch for a possible back-kiss of the resistance trendline extension–if we get there.  Above 2704.50, means the post-holiday futures were pushed lower to create a simple stop sweep under the bottom of the short-term range bottom.  Buyers will likely come in on a move above the last lower high (and especially on an upside IT/ST range breakout above 2741.75).

…my .02

 

 

 

 

 

Market Update

click on image to enlarge

 

The chart above shows the current state of the Weekly Bar Paradigm that has been driving this market since the 2009 bottom.

There are two noteworthy items to point out…

  1. The contracting triangle formed off the January/February high and low.
  2. The hard deck has moved up to 2552

This has been an incredibly boring market as it continues to contract and consolidate that January/February 2883.50 to 2534 plunge.  Energy is being stored, however, for release on the eventual breakout–and when it comes, it might be exciting… or terrifying  (depending upon your outlook and positioning at the time).

So, as a quick refresher on the Weekly Bar Paradigm for any newer readers here…

Since 2009 there have been just nine instances where price has dipped below a 4 week pivot low (all are numbered on the chart above).  In seven out of nine of those instances we got what I call a ‘stop sweep/reversal’, which means that the engineered takedown succeeded in creating panicked sellers under those pivots.  Those sellers were picked off by the pros and then the market reversed violently higher once their new inventory was in hand.  The pros have to push traders to the other side of their trades at turns.  That’s how they create large numbers of sellers at the precise point where they buy-to-cover their short trades and then double up the buying to accumulate new inventory for the next run higher.  (The reverse is true when bears are forced to capitulate, which creates forced buyers (as the bears cover losing positions) at the precise moment that the pros wish to sell/sell short).  It’s the way things are and always have been in the market (in my opinion).

Only twice in the nine labeled occurrences above, at points 2 and 6 (also highlighted in yellow) did the market continue lower after breaking under the last higher 4-week pivot low (all pivot lows are marked by green dots on the chart above).  In those two instances we got the Elliot Wave Theory equivalent of corrective waves two and four in a bullish impulse sequence.  If one continues that logic forward–the recent top at 2883.50 could be the equivalent of the end of ‘wave 5’.  If that turns out to be the case then what theoretically follows a 5-part ‘impulse’ up is 3-part ‘corrective’ wave down.  So, keep that in mind going forward.

I have said it repeatedly since we first identified this pattern many years ago that we will KNOW with certainty when the paradigm finally ends when the following condition occurs…

If a break UNDER the last higher 4-week pivot low fails to recover back above that line in subsequent trading then the bullish paradigm will have ended.  That line, what I call the hard deck, is now at 2552.  If we were to see a break south on a resolution of the current triangle then you most likely DO NOT want to be long this market under that line.  It is a long way back down to trendline support… and a v-e-r-y long way down if that very-long-term trendline were to ultimately fail.

So as always, Caveat Emptor when this paradigm ultimately fails.

 

 


click image to enlarge

 

Let’s take a closer look at that contracting range triangle on the daily bar/range chart above.  Note that price is currently testing the descending red trendline, which defines bearish resistance.  Just above that trendline is the intermediate stop/reverse line from Stops and Targets and then the top of the intermediate trading range, which is currently at 2718.50.

The market has a chance here to either break out to the upside–or to begin another pullback in the contracting range.  Let’s watch carefully to see what happens next…

If the S&P 500 Futures can clear resistance pointed out in the preceding paragraph then next target higher would be the contracting top of the long-term range, which is currently at 2807.25.

If, on the other hand, price is turned back once again at resistance then professional sellers will come in on a break under the last higher low, which today would be 2666.50… or if today’s low holds into the close then tomorrow sellers would come in under 2692.75, and so forth in subsequent days.  This is a ‘push sequence’ that the pros use when they are ready to move the market.  Once you see a sequence of higher lows (or lower highs in a pullback) just watch for the break of the last one in the sequence–because that’s exactly what the floor traders used to do–and is how the black box algorithms that replaced them inevitably can be relied upon to do.

So, top of the triangle here–let’s watch carefully to see what the pros do going forward.

…my .02