Market Update – Bottom Spotters!

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 )

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.

 

 

click image to enlarge

 

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.

 

 

click image to enlarge

 

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…

 

 

 

 

click image to enlarge

 

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:

https://stopsandtargets.com/members/signals/spotter.php?param=BSbuy

If this Spotter bottom sticks, that is where you will find your new market leaders with explosive gain potential.

…my .02

.

..

.

.

.

.

.

 

Market Update

One person sent a comment to me after my last post who was a little confused by the flipped charts I used.

To help clear that up I have posted my current monthly bar analysis chart (each candlestick bar on the chart below equals 1 month).

Right below the first chart I have posted the flipped (mirrored) image–but this time without reversing the colors and erasing the text so you can all better see what I did.

Hope this side-by-side display helps to clarify… If anyone else has questions, as always, send me a comment above.

 

click image to enlarge

Currently monthly bars in the chart above…

 

click image to enlarge

…the same chart has been flipped to show the opposite perspective.

 

 

The whole idea of this exercise is to flip our brains’ perspective on the market to help better grasp a shocking change.  We have had almost 10 years of a raging bull market and now we see the first major deviation from that long running paradigm.  So, my idea is to display the current market as a bull would see it–so as to illustrate the same market dynamics from a bearish perspective.

This is a very young (but so far, vicious) bear market.  It is the exact mirrored equivalent of the first touch of the previous bearish trendline, from below, way back in 2012.  The breakout that killed the old secular bear and launched the new bull is highlighted by a yellow shaded circle on the charts above.  The equivalent trendline for the secular bull that has been underway since 2009 now lies just below.

Since price recently sharply broke out to the downside of the very long-term range envelope (at 2546.75) the rising dark green support trendline is the next major target below.

Will there be a powerful short-covering bounce that erupts near there?  Possibly.  We’ll see soon enough.  That’s about as deep as the pros can go without completely destroying bullish hopes for an eventual recovery back toward new highs.  Underneath that trendline all hell could break loose to the downside as panic selling intensifies.

The rising very-long term trendline is currently at the 2344.50 area.  Let’s watch carefully and see what happens there.

The big unanswered question here is: are the global socialists willing to burn it all down in a desperate attempt to stop President Trump from dismantling their cushy oligopoly?

Head’s up at the trendline!

…my .02

 

Merry Christmas Everyone!

 

 

 

 

Market Update

Today is December Options Expiration.  This is a quadruple witching day when market index futures, market index options, stock options and stock futures all expire.

 

 

At the close yesterday, a whopping 91% of the Russell 3000 stocks are in some form of bearish decline!  56% of the Russell 3000 are trending fully bearish.  If today’s prices hold until the end of the year–then we will have just witnessed the worst one-month decline since the last secular bear market ended in 2009.

 

 

So, with those gloomy (for market bulls) stats in hand, I thought it might be interesting to illustrate a point that could be very helpful for those trying to wrap their heads around what is happening–and to have a clear vision of how to deal with what comes ahead…

 

click image to enlarge

 

I have an important question for you…

Would you BUY the stock shown in the chart above?  Now, don’t just hurry along to the next paragraphs and miss this great opportunity.  Look very carefully at the chart above–especially at the range envelope boundaries.  What do you see as you compare the price bars with those boundaries?  Ask yourself a question–if you could go back in time with nothing but this chart as a guide, would you be able to skillfully manage entries and exits?  If so, how would you do it?

What do YOU see here?

 

 

click image to enlarge

 

Here’s a different format of the same chart above–but this time I have exchanged the candlestick bars with a gray line representing the closing price.  Do you see anything that pops out at you yet?

 

 

click image to enlarge

 

Ok, so one more look at the same chart–but this time I have replaced the gray line with tiny points that represent the closing price–so that the range envelope channels are prominently featured.

Think about how I always define a bull and bear market…

  1. A bull market is a series of higher highs and higher lows.
  2. A bear market is a series of lower highs and lower lows.

Now do you see it?

Here’s a hint… look at the exact spots where the range envelopes reversed directions.  What HAD to happen to make those range envelopes stop trending one way and then reverse in the other direction?

Ah, you say to yourself.  Now I see it!  In order for the trend to change direction, price HAD to cross from one side of the channel and then break out through the other side.

That my friends, is the absolute beauty of the range envelope strategy for analysis.  Look how well it works in the images above!

Bull = higher highs and higher lows, Bear = lower highs and lower lows.

Now, back to my original question (and to answer please refer back to the very first chart representation above that shows the candlestick bars)…

Would YOU buy the stock shown in the chart above?

 

 

click image to enlarge

 

 

So, here’s my take, with notes that correspond to the blue numbers on the chart above…

  1. The market was clearly in a bullish uptrend.  This is where the second higher low stopped pushing the lower range envelope lower and began to head towards the other side of the range.  Once price stopped pushing the lower range envelope down the range envelope flat-lined and when it later broke out above the previously descending upper range envelope it quit descending and started to go higher (higher highs).
  2. The market peaked and began to rapidly pull away from the top channel which, like at point one, caused the top rail to stop rising and instead flat line.  That was the end of ‘higher highs’.
  3. A monthly counter-trend sell confirmation came when price broke below the previous month’s low.  This counter-trend move next targeted the lower rail.
  4. The lower rail was pierced here, which stopped the higher lows and began the process of building new lower lows while simultaneously dragging the higher channel rail lower.  Voila! Lower highs and lower lows was the start of a trending bear market.
  5. A major counter-trend bullish rally rose to just touch the top rail–and then reversed to rejoin the trending bearish downtrend.
  6. The traditional bullish trendline was broken here, but long after the initial trend changes described above.  Once that trendline broke–everyone else headed for the exits and the rout was on.
  7. The next major counter-trend rally in the bear market again perfectly touched the top rail and then reversed to rejoin the bearish trend.
  8. The market bottomed (actually a double bottom complete with a stop sweep/reversal) and then started to move away from the bottom rail targeting the top rail.  The bottom rail has begun to flatline.
  9. The counter-trend rally was confirmed on a cross of the previous monthly high at the green line.  Note that this was a mirror image of what happened at the previous top.

The last VERY IMPORTANT event was a cross ABOVE the range envelope top rail.  So long as price continues to hang out on this side of the range envelope high, we have the start of a trending bull market.  The range envelope will now start a new ‘V’ and barring a cross back under the range envelope high, this is the start of a new bull market.

For this new bullish launch to be short-circuited we would need to see a range envelope counter-trend sell starting with a break below the range envelope high–and then followed by a break below the last month’s low for confirmation.  Got that?

 

 

Now that you have been focusing hard on analyzing the chart above and should have reached you own conclusion, let’s look at the same question from a completely NEW (actually old) perspective…

 

It’s been a while since I have sprung this logic trick on you guys, so let me explain why I am doing this…

Almost all of us have a pre-conceived bias when it comes to judging the markets.  Most people have been conditioned to see the market from a bullish bias, and with good reason.  We have been in a massive secular bull market since 2009 and up until the recent top–being consistently bullish has worked!  Something happened recently that froze many investors in their tracks and it is illustrated perfectly in the chart above.

 

 

 

click image to enlarge

 

That chart that you have been focusing on above is ACTUALLY the same S&P 500 Futures Options monthly bar chart that I display constantly here.

…Except I have flipped the chart vertically to invert the prices and colors!

If you concluded that the first set of reversed chart images above was a ‘buy’, then now, to stay consistent, you MUST reverse that assumption when applying the same logic to the actual chart above.

So, as Paul Harvey used to say… Now you know the rest of the story!

Just reverse my analysis points of the inverted chart and that’s where I am at.

 

 

 

Stops and Targets has nailed every step of this reversal starting with the top spotter, then the subtle counter-trend sells in each timeframe, and then the hard sell signals when the trends changed on a cross under the range envelopes.

I tell you, I absolutely love Stops and Targets.

Always keep a close eye on those range envelope signals.  It is bear country so long as we are below the range envelope lows–but the first sign of a counter-trend rally will be a close above the range envelope low, and that would be followed by a close above the short-term stop/reverse line to trigger the first short-covering buy to cover signal for bears.  See how that works?

…my .02

.

.

.

.

.

 

Market Update

click image to enlarge

 

Take a peek at the range envelope on the monthly bar chart above (shown as dashed gold —— lines)…

For only the third time since 2009–the S&P 500 Futures options have touched the bottom rail of that very-long-term channel, which is currently at 2546.75.

After the last two touches (in October of 2011 and February 2016) we had the start of a new leg higher and those were perfect entries.  So, obviously, this is a pretty big deal right here.  Bulls desperately want to see that major support hold… bears, on the other hand, would be quite excited to see it fail.

 

.

.

click image to enlarge

 

The Weekly Bar Paradigm is also being tested.  The last higher 4-bar pivot low was at 2607.  We would need to see an eventual rally that crosses back above that line to keep the stop sweep/reversal streak going.

 

 

 

click image to enlarge

 

The daily bar range chart above shows the bounce from very long term range support at 2546.75 and the gap fill at 2536.50.

There is a significant band of resistance just above this area (multiple solid ____ red lines) between 2576 and 2630.  It is going to take quite a push to get through all that–so we’ll see shortly which side the pros are on.

In addition, we have the FOMC announcement tomorrow at 2PM followed by end-of-year Options Expiration on 21-Dec.  So, lots going on right here!

There is still no significant Bottom Spotter activity–so we may yet have another test of the low ahead at some point.  Let’s see how it goes here at this resistance band starting at 2576 and then next at 2607 resistance, if price gets there.

The key line in play for the Weekly Bar Paradigm is 2607, and FOMC and OpEx are both huge events–so head’s up right here!

…my .02

.

.

.

 

Options Rollover

.

Futures Options have now rolled over from the December 2018 to March 2019 futures contract with a difference of +4 points from ESZ18 (December) to ESH19 (March).

All previous chart numbers have been adjusted to reflect the new contract pricing—so, for example, the Bottom Spotter from the expiring December contract at 2583 now becomes 2587, and so forth.

.

.

click image to enlarge

 

S&P 500 Futures are still working off of the stop sweep poke below 2607 on 12-Dec.

The key line to watch going forward is the short-term stop/reverse line, which is presently located at 2652.50.  A move back below that line would flip the short-term back to bearish and could usher in a test of the low at 2587.

Bulls are good to go above 2652.50 but the bears would resume control underneath.

As I pointed out yesterday, there are two more events coming in quick succession that will dictate what the market does…

  1. The FOMC global socialists will issue their interest rate edict at 2 pm on 19-Dec
  2. Options Expire on 21-Dec (quadruple witching)

…my .02

.

.