Yesterday the market enjoyed the single biggest one-day gain in history! The Dow Jones Industrials were up +1,086.25 points (almost 5%). The NASDAQ Composite was up even more at +5.84%
As one would expect from such an amazing rally after a prolonged pullback, there were HUGE numbers of new Bottom Spotter Alerts.
In all there were 1,335 new Bottom Spotters in the Russell 3000 and an almost unanimous 6 new Index Spotters. Only the NASDAQ Composite cash index was missing (due to an opening gap that was unfilled).
No matter how you slice it, that is a LOT of Bottom Spotter alerts! Next we will have to wait and see if those initial alerts are ultimately confirmed with large numbers of closes above yesterday’s highs.
*The Spotter rules (from Stops and Targets User Guide): https://stopsandtargets.com/help/#collapseThirtythree )
A Spotter Alert can detect the start of a countertrend pullback or the potential for a reversal of the current trend on the very day it happens. There are two types of Spotter Alerts.
- Top Spotters are bearish and can detect the start of a countertrend pullback or potential for a reversal of an existing bullish uptrend.
- Bottom Spotters are bullish and can often detect the start of a countertrend bounce or potential for reversal of an existing bearish downtrend.
Spotter Alerts have two parts—the initial detection signal and then a Confirmation on a subsequent day to validate the Spotter Alert setup. Not all Spotter Alerts are followed by a valid confirmation–and a signal will be immediately invalidated if price trades above a Top Spotter Alert or below a Bottom Spotter Alert on any subsequent day.
ⓘ A new Top or Bottom Spotter signal is always generated during a powerful trending move and is itself countertrend. A Spotter Alert can be dangerous if misinterpreted because Spotters often go unconfirmed and are invalidated instead (which can be a powerful trend-continuation signal). A Spotter Alert signals a potential exhaustion of momentum and is intended to be used as an early warning signal rather than a trade entry point.
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In my last post I gave a ‘Head’s Up’ alert for the potential for a big bounce off the very long term trendline, which is shown on the monthly bar chart above.
We definitely got that bounce yesterday (see blue circle)!
As I mentioned in my previous post, that trendline was about as far as the pros could drive the market down before destroying all bullish hope of a potential recovery to continue the secular bull market that has been in place since 2009.
The massive number of Bottom Spotters yesterday is certainly a hopeful sign… but we’ll have to wait and see if those counter-trend signals are ultimately confirmed in the coming days and weeks.
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So let’s take a look at where this market is currently using Stops and Targets excellent analysis…
In the screen capture above for the S&P 500 Futures Options, we can see that above the short-term stop reverse line at 2434.50 the market is presently in a short-term rally in an intermediate bear market.
That is a key point to understand. We are in an intermediate bear market and yesterday’s rally, for all of its glory, was a bear market rally–and bear market countertrend rallies can be amazingly powerful–but one has to remember that at least for now, the market remains bearish until/unless certain things begin to start happening…
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On the daily bar chart above I have stripped away the long-term and the short-term signals to only show the intermediate perspective.
Note the thick red line at 2818. That is the intermediate stop/reverse line. If you look closely you will see that it is equal to the top of the descending intermediate range envelope, which is shown as dashed brown lines on the chart above.
When the stop/reverse line is EQUAL to either range envelope boundary–that means the selected symbol is TRENDING, and in this example the intermediate timeframe is trending BEARISH. Until/unless that descending range envelope top rail is ultimately broken to the upside–this remains a bearish market.
The first step of flipping a trend is to stop expanding the opposite side of the range and for price to start the journey across the range toward the other side. Yesterday certainly provided a nice separation move away from the bottom of the range. Now let’s see if that bounce can continue moving north in the coming days and weeks.
Flipping a trend is a process and there has been a LOT of damage done to the downside since the intermediate top on 21-Sep-18.
If we continue to see movement higher, the next key resistance above is at 2546.75 to 2564.75. If we can get through that tough resistance band–the Weekly Bar Paradigm could come back into play with a move above the very important line at 2607.
Of course, a move back below the Bottom Spotter low at 2316.75 would negate everything bullish and could kick off a frenzy of new selling if that very long term trendline support were to fail.
The weekly bar chart above shows another look at yesterday’s bounce off the very long term trendline and also points out the last higher weekly bar four bar pivot low at 2607. IF we were to get a recovery that ultimately gets back up and through that very important line then we could have the 10th sweep/reversal line play in the Weekly Bar Paradigm since the 2009 bottom. Long way to go yet, but keep that possibility in the back of your mind as the market works forward from what could be a Bottom Spotter low (if it holds).
The other side is that if the market cannot ultimately reclaim the 2607 level then the amazing Weekly Bar Paradigm will have finally come to an end.
The key line in play now is the short-term stop/reverse line, which is presently located at 2434.50. Trading bias is short-term bullish above that line but bearish below.
The short-term timeframe now runs under slightly different algorithm rules than the intermediate and long-term. It uses what Stops and Targets calls ‘aggressive mode’, which assures that any daily bar trending move (of lower highs or higher lows) will get stopped and reversed immediately intraday.
In the current setup, the previous daily bar downtrend was broken yesterday on a move above the last lower high (after nine consecutive down days).
The current short-term stop/reverse line was set from that last daily bar lower high on 21-Dec-18 at 2434.50.
The short-term will start to trend again (it is currently rangebound between 2316.75 and 2592) once we get either a higher low on a daily bar close (bullish) or a lower high (bearish) than the current stop/reverse line of 2434.50.
So let’s keep an eye on those Spotter Alerts and see if they can be confirmed in the coming days–or if instead they are invalidated.
A good link to watch over at Stops and Targets is this one, which shows symbols with confirmed spotter signals:
If this Spotter bottom sticks, that is where you will find your new market leaders with explosive gain potential.