Market Update

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At the end of my last post I gave a ‘head’s up’ regarding a potential bounce off trendline support (see the green trendline on the chart above).  That worked for a support target (since no closes below), but as it turned out the actual bottom came a day later on a perfect touch of the blue trendline that is drawn as a parallel to the same trendline that connects the recent tops.

So long story short… those major trendline support touches are why we are seeing a bounce here.

 

 

 

 

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The short-term trend has flipped to bullish on a cross above the stop/reverse line at 2690.25.  Next target higher is the descending short-term range envelope top, which is currently at 2757.50

Let’s watch and see how this short-squeeze launched from the parallel channel bounce unfolds.  Election Day is now just four trading sessions away and that is what is and has been driving this current market action.  As always, the pros will leave themselves pre-positioned favorably, no matter what the outcome.

…my .02

 

 

 

 

Market Update

 

 

 

Things are starting to get a little ugly for the broad market bulls (but beautiful if you are bearish) as the engineered takedown is now down more than 10% since the Top Spotter signal on September 21st.

Under the range envelope bottoms we have a bearish trending breakout looking for a place to bottom.  So the big question is… where might that bottom come?

 

 

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For clues, let’s take a peek at our old friend, the weekly bars chart.

On the chart above you can clearly see the paradigm that has been driving this secular bull market since the bottom in 2009.

For some of you newer readers, here is a quick refresher of our Weekly Bar Paradigm

  1. Each candlestick bar represents one week in the market
  2. What we are interested in tracking here are four-bar pivots.
  3. I have market each pivot low with a green dot and each pivot high with a red dot on the chart above.
  4. We are mostly interested in the pivot lows since this is a bull market as defined by higher lows
  5. There have been only nine instances since 2009 where price has dropped below the last pivot low.  Each is numbered on the chart above.
  6. In seven out of nine instances, the dip below was immediately bought and was a perfect entry to ride the bull.  I call those areas ‘stop sweep reversals’, because once the pros ran the stops and achieved capitulation from the bulls–the market was reversed on the ensuing doubled buying (to cover shorts and to establish new long positions).
  7. Only twice, at points 2 and 6, did the market not immediately recover.  Those two places are highlighted in yellow and correspond to waves 2 and 4 down for Elliot Wave enthusiasts…or just ‘market corrections’ to most traders.
  8. Note that the most recent higher pivot low occurred at 2560.75 way back in April of this year.

 

Okay, so take a look at the chart above and try to picture three options ahead…

  1. The current decline halts at or above the last higher pivot low at 2560.75
  2. The decline breaks under 2560.75 and we get our seventh stop/sweep reversal
  3. The decline breaks under 2560.75 and keeps going

<rant/>
In my opinion, this engineered pullback by the pros is them gaming the upcoming mid-term elections, which occur on November 6th here in the US.  President Trump has made a LOT of enemies amongst the global socialist crowd and this engineered market assault is just one of many fronts being used against him to try to affect the election.  The World War II division-sized invasion force heading north through Mexico is another.  The silly fake bombs, and no telling what other sort of subterfuge yet to come.  It’s all evil, it’s all fake, and is just what those people do.
</rant>

Unless we get a bottom before 2560.75 to eventually set a new higher pivot low, then it is plausible that we could see an interaction with 2560.75 (options 2 and 3 above). It would make me laugh out loud if the pros do another stop/sweep reversal–but if that happens, then remember that you heard it here first.

When we get a new tradable bottom, I would expect to see huge numbers of Russell 3000 Bottom Spotter signals over at stopsandtargets.com.  That’s been the previous pattern for a significant bottom and was last seen in February of 2018.

So, what happens if we see scenario 3 develop?  If that happens, then the paradigm that we have been following here (and feasting upon) since 2009 will change.  The next major target lower would be the very long term trendline.

I’ve been hearing from lots of my old bear friends recently who have been in deep hibernation.  Howdy everyone!  It’s been a very long time since bears have had anything to get excited about.  This market is definitely cyclical bearish now–so continued happy hunting on the short side…but watch out for those range envelope counter-trend buy signals, and especially for the Bottom Spotters when they come.  The eventual short-covering rally, once this push lower abates, could be epic!

 

 

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Head’s Up right here:  The daily bar/range envelope chart above shows a bounce, as I type, off of intermediate trendline support.  Let’s see if that holds.

If not, then the blue dashed line shows the target of an A = C price and time leg down from the Top Spotter.  The blue shaded area is at that target of 2589.50 on, you guessed it, Mid-term Election Day.

…my .02

 

 

 

 

 

 

Market Update

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Since we are currently near the bottom of the long-term range and awaiting resolution of that trend, I thought it might be interesting to take a look at the market from the very long term perspective (using monthly bars)…

Let me start by describing my technical analysis parameters:

  1. The chart above shows the S&P 500 E-Mini Futures Options from that contract’s inception back in 1998 to the present date.
  2. Each candlestick bar represents one month.
  3. The bright red and green dots represent 12-month pivot highs and pivot lows respectively.
  4. The very long term (VLT) trend lines are drawn connecting those pivot highs (red) and the pivot lows (green).
  5. The dotted gold channel lines define the very-long-term range envelope (using a 12-bar look back).

In short, everything you see drawn in above is from a 12-month very long term perspective and is a great way to illustrate the difference between a secular bear market and a secular bull market–and to define precisely what it would take to change from one to the other going forward.

The term ‘secular’ may be transposed with ‘very long term’ (years to decades) as opposed to ‘cyclical’ trends, which are perfectly defined by Stops and Target’s ‘long-term’ (quarterly), ‘intermediate’ (monthly), and ‘short-term’ (weekly) trends.  All trends are cyclical to a certain extent, but the secular trend is foundational and is the longest practical investment/trading timeframe for a typical human lifetime.

Technically, the last secular trend change (from bearish to bullish) was confirmed on a trend line breakout on September 7, 2012 and as I pointed out at the time it was indeed a ‘HUGE deal’.

I have marked the last transition from secular bear to secular bull with a vertical dashed line on the chart above, along with a yellow highlight at the breakout.

As I have pointed out many times here, my definitions of market trends are as follows: A bear market is a series of lower highs and lower lows.  A bull market is a series of higher lows and higher highs.

The same definition can be consistently applied to any situation from minute bars to monthly bars.  So, let’s apply those definitions to the chart above…

Look at the pivot highs and pivot lows from 1998 to 2012.  What you see is a series of lower highs and lower lows.  I drew a red descending trend line through the lower highs.  The point where that trend line was finally broken to the upside was the official end of the last secular bear market, which spanned from 2000 to 2012.

Next, take a look at what happened starting in October of 2011… That was the date of the first higher pivot low, eventually building after an explosive rally from the actual bottom in March 2009.

Major bottoms and tops usually aren’t obvious to most people in real-time but there were significant clues that March 2009 was a MAJOR bottom.  The first clue was HUGE numbers of Bottom Spotters on the actual bottom date (March 6, 2009), followed by massive spotter confirmations in the coming days/weeks.  The next major clue came when the range envelope top AND bottom rails both began to rise, which can only happen in a trending market.  For that to happen, price first had to puncture the previously descending top rail, which happened in November of 2009.  

Note also that once price started trending higher, the bottom rail of the very long term range envelope has only been touched three times in the past nine years:  

October of 2011, which was a perfect low stress/low risk buy signal, and then in January and February 2016 (double bottom), which was again an absolutely perfect buy signal.

After the bullish breakout of the descending red trendline in September of 2012, the next confirmation came when the last lower pivot high was taken out to the upside in March of 2013.  Once that happened, it was impossible to continue to create a new lower 12-month pivot high–so the bear market was officially dead at that point and a new future higher pivot high was guaranteed.

The second higher pivot low was created in February of 2016 after a weak cyclical bear market (where no new pivot high was created) that began in May 2015 (with a double top in July 2015).  There has not been another higher low since February of 2016–and note with special interest that there has not been ANY higher pivot highs created since 2009!  As is plainly evident by looking at the chart above–this has been an extremely powerful bull market!

I have drawn the green secular bull market support trendline between the last two higher pivot lows.  Until we get a new higher pivot low, that trend line support defines the first technical hurdle that would have to be crossed to start a new secular bear market.  As I type, that rising trend line support is currently located way down at the 2305 area.

Any easier way to visualize the minimum depth of a pullback required to create a new higher pivot low is to use the range envelope channel.  The lower edge of the channel defines the precise target in real-time where a minimum pullback would need to go to create a new higher pivot low.  As I type, the lower edge of the very long term range envelope is at 2533.50.

 

Let’s take a look at where we are currently…

Both rails of the range envelope are at new highs, so clearly this is a trending secular bull market and will stay so until that rising lower range envelope rail is eventually pierced to the downside.

We got a counter-trend pullback signal at the 2947 high and then a counter-trend sell signal at 2870 on a break below the last higher candlestick bar low.  Both of those signals are counter-trend bearish.  While it is nearly impossible to recognize a MAJOR top in real-time, if this market were to start a rapid decline–that counter-trend sell at 2870 could be the mirror image of the countertrend buy (shown as green line with up arrow) that happened way back in 2009.  A big difference now from 2009 is that we did NOT see unanimous Top Spotters in the indexes/futures and simultaneous confirmation from Russell 3000 stocks.  However, markets tend to create V-shaped bottoms, and rounded tops at major turns, so there is that to consider as this engineered move continues to unfold.

 

 

 

The current downside scenario for the very long term only comes into play if/when the long-term is bearish.  I pointed out in my last post that we should see some churn around the long-term support area as huge bearish profit is taken by the pros–and that is exactly what we have been seeing so far.

The next clue comes from watching the bottom of the long-term range envelope (highlighted in yellow) on the screen capture from Stops and Targets shown just above.  The last range envelope signal was a counter-trend buy at 2712.25.  Price action is counter-trend bullish above that line but reverts back to fully bearish below.  If that counter-trend buy signal fails to hold then the very long-term chart at the top of this post might become of increasing interest.  Otherwise, if the current pullback finds a bottom near long-term support then the next target higher would be intermediate resistance at 2870.

I pointed out that the current ‘churn zone’ at and just below the long-term pullback target (2778.75) can be dangerous for bears who missed the earlier short trade entry signals much higher up.  After a small down/up wiggle, price remains right about where it was at my last post (near the long-term stop/reverse line).  In my experience, it is almost never a good idea to stay short against a Stops and Targets counter-trend buy signal, but we’ll see how this plays out.  As before, watching the bottom of the range envelope is the key in this setup.  Green is (counter-trend) bullish (back up to resistance)–and red would be fully bearish on a new range expansion to the downside.

Pros don’t usually kick off a nasty move like this without much malice aforethought.  The global socialists absolutely hate President Trump, and the mid-term election is nearing–so we shouldn’t put it past these characters to do something stupid to try to slow the economic momentum of the US economy (like continually raising interest rates, for example).

We will find out soon enough if this is just a long overdue pullback to long-term support (and a great buying opportunity)… or if it instead morphs into a long-term cyclical bear market.  For now, 2712.25 on the S&P 500 Futures contract is the key line to watch to see if the counter-trend buy signal from 12-October can maintain its foothold.

…my .02

 

 

 

 

Market Update

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Hopefully my ‘Head’s Up’ post yesterday helped nudge some readers to be extra vigilant ahead of today’s big -110 S&P 500 Futures point smackdown (-831 Dow points)…

Ample signs were there for potential weakness, and once that key intermediate range envelope support broke down–it was off to the races as successive stop levels were triggered amid panic selling underneath.

I have added the long term range envelope channel and support/resistance levels to the chart above to show how price was precisely driven to the next major downside target today, which was long-term range envelope support at 2778.75.

See how that works?  It’s really amazing stuff.

Today’s ES low was 2771.50, so that now becomes the new range envelope bottom rail for all three timeframes and is the key line to watch going forward.

If you were positioned bearish coming into today (congrats!) and now have big profits on paper …then ABOVE that line is a good place to consider starting to cover to take profit–because that is exactly how and where range envelope counter-trend buy signals are generated.

Think of 2771.25 as the bull/bear line now for ALL timeframes… price action is fully bearish BELOW but switches to counter-trend bullish ABOVE.  (That’s a very important concept to understand when using the Stops and Targets algorithms)

Yesterday most people were not watching the market at all and likely didn’t care (but WE were 😉 ).  Today, however, all eyes are now fixed upon the market and this sudden new reality after the plunge.

Newly minted bears are now excited and energized and probably ready to hop on new short entries in the coming days.  We might get more downside, to be sure, but this is the first danger zone right here for late-to-the-party-bears.  Remember, the pros like to exit their short trades without driving the market against their positions.  Once covered, then they buy to flip back to long bias and after new positions are accumulated at bargain price they will almost always drive the late to the party bears higher as eventual guaranteed buyers (bears forced into buying to cover shares they borrowed to sell short).

The game never changes, so just watch for the usual phases to develop:  sneaky selling at a top, yanking the plug (we are here), sneaky buying to cover near the ultimate downside target, another dunk lower to bait in new shorts and to shake off nervous buyers (while accumulating positions on the other side, of course), and then the inevitable blast off short-covering rally once enough people are on the other side of the pro’s trades.  Then wash, rinse, repeat.

A good way to stay on the right side of the pro’s shenanigans is to follow the range envelope signals as explained above.

If the market ultimately rallies from near this long-term support area then no problem, most will agree that this was just a steep pullback in an otherwise healthy long-term bull market.  If, on the other hand, long-term support doesn’t hold and new selling starts then we might have something much more serious coming ahead.

There is a MAJOR election coming on November 6th and many allied entities could be interested to try to take the economic legs out from underneath the Trump Administration.  As we have all seen recently, these people are crazy and desperate and will stop at nothing.  I have no doubt that the Fake News will also be more than happy to make this their next attack vector, if at all possible.  It’s hate versus hope, in my opinion, and I’m a big fan of hope… but I am always willing to adapt to whatever the market gives.  If this market goes long-term bearish then I’ll dust off my big ol’ hairy bear suit and switch sides for a while after almost a decade of hibernation …been there and done that, as many of you know.

‘Head’s Up’ again right here:  Yesterday it was all about 2866 and today it’s now all about 2771.25 (the previous trading day’s low) as we watch and wait for the next phase to start.

 

 

 

Watch the lower range envelope numbers (highlighted in yellow on the screen capture above) very carefully going forward… red is bearish and green is bullish.  Easy-peasy.

 

…my .02

 

 

 

Market Update

 

Let’s take a peek at where the market currently is using Stops and Target’s S&P 500 Futures summary tab as a proxy…

  1. A Top Spotter signal was generated on September 21st at 2947.  That signal was confirmed on a cross below 2932 on September 24th.
  2. The short-term trend flipped bearish at 2925.50 on October 4th.  The stop/reverse line has followed that trending move down and is currently at 2898.25.
  3. There was a bounce at intermediate range envelope support yesterday at 2866 for both the short and intermediate terms.

 

 

 

click image to enlarge

 

In previous posts I mentioned that the market has been dominated by events in the intermediate timeframe since the current leg up started at the major Bottom Spotter–and that we wouldn’t see any change in that paradigm until the rising lower range envelope channel (shown as dashed green lines on the chart above) is eventually broken and held to the downside.

On the chart above the major event sequence is as follows…

  1. Top Spotter at 2892.25 on 29-Jan-18
  2. Bottom Spotter at 2452.75 on 06-Feb-18
  3. Range top rail resistance touch at 2814 on 13-Mar-18
  4. Range bottom counter trend buy at 2560.75 on 03-Apr-18 (cyan shading on chart above)
  5. Top Spotter at 2801 on 13-Jun-18
  6. Intermediate trend start buy at 2722.75 on 05-Jul-18
  7. Top Spotter at 2947 on 21-Sep-18
  8. Range Support buy at 2866 yesterday

So, here were are now between intermediate range support at 2866 and the short-term stop/reverse line at 2898.25

A breakout above the stop/reverse line at 2898.25 would be a confirmation of the support buy at 2866 and will bring in momentum buyers (and smart bears buying to cover) if that happens.  On the other hand, a break below *2866 would be a significant change in the character of this very powerful bull market, which has not even sniffed a touch of that rising bottom rail since the intermediate range bottom counter-trend buy signal way back on 03-Apr-18.

So ‘head’s up’ …this is an important juncture right here.  Watch the short-term stop/reverse line for clues going forward.

…my .02