Stops and Targets is currently showing the E-Mini S&P 500 Futures Option (see screen shot above) is rated BULL 3, which is the second stage of an intermediate rally within the context of a long-term bear market. As we oscillate inside the current very small range it occasionally flips to BEAR 8, which is a short-term pullback in an intermediate bull market. There is indecision here awaiting resolution, but that will likely change very soon as I will explain below.
Let’s take a quick look at where the market is at currently–starting from the monthly bars and then working back towards the daily bars to get a feel for all three major timeframes…
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The currently monthly bar (January) is painting as an ‘inside bar’, which means we have a lower high and higher low against December. With two more trading days to go in January, the highest probability is to stay as an inside bar, which could set up February for the first ‘monthly buy’ signal (on a cross above the January high).
Although the market has been rallying hard from the VLT trendline bounce and Bottom Spotter at 2316.75 we still see a bearish progression of lower highs and lower lows on the monthly bars. As mentioned in the paragraph above, that pattern could be broken with a new higher high in February–but for now, the pattern remains bearish in this timeframe until/unless we see a new monthly higher high in the future.
Note that the monthly bar chart correlates well with the Stops and Targets assessment. It’s still a long-term bear market, but the top of the long-term monthly range has been descending (currently at 2822, down from 2951 top) as the long-term range bottom (2316.75) holds.
Next, let’s take a look at the weekly bars…
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The chart above shows weekly bars, and is very interesting…
It shows the current status of The Weekly Bar Paradigm…. which, to refresh for newbies reading here, simply states that so long as new higher 4-bar pivot lows are building on the weekly chart–any pullback that dips below the last 4-bar pivot low and then crosses back above is a ‘stop sweep/reversal buy’.
The 10th instance of that very powerful paradigm, which has yielded perfect entry points since the 2009 bottom, has just occurred at the recent low with an ensuing rally back above the last higher 4-bar weekly low pivot at 2607.
The time will eventually come when price cannot recover and hold back above the last four-bar pivot low. When that happens the glorious secular bull market that has been roaring along since 2009 will have officially ended and I will be sure to point that significant reversal out right here.
My definition of a bull market in any analysis is simply ‘higher highs and higher lows‘. When the current secular bull ends–we will then start to experience a pattern of 4-bar weekly ‘lower highs and lower lows‘ and the same strategy in play since 2009 may work in reverse for the bears.
We can see how the recent pullback bottomed at the very long-term support trendline and then rallied for five consecutive weeks before stalling at the current week’s ‘inside bar’… which is itself an inside bar to the previous week.
The initial ‘weekly bar buy‘ signal came on a cross above 2523 (see green arrow on chart above). The current weekly trailing stop is located just under last week’s low at 2612.50. Note also that line is equal to the current short-term range bottom from Stops and Targets.
That line at 2612.50 is what I am focusing on right now. Lets move next to the daily bars/range chart to see why…
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On the daily bar/range chart above you can see why the market stalled right at 2677.75 and we got the original range-top counter-trend sell alert for short and intermediate timeframes right there from Stops and Targets.
That was a perfect ‘back-kiss‘ of the broken short-term trendline support trendline (see red arrow on the chart above). The pros often use a back-kiss of a broken trendline to be sure they have exhausted all stops on a counter-trend move. In the current case–the stops that are under heavy pressure are those of bears who shorted at and below the trendline break on 14-Dec but then missed the huge Bottom Spotter turn at 2316.75.
Since the back-kiss at 2677.75, the market has basically traded sideways in a very narrow range between 2612.50 and 2672.50. That is equal to the short-term range at Stops and Targets. See how that works?
This market is presently coiling for a momentum breakout from that very tight range–once the pros decide the time is right.
Remember what I often say here about these constricting periods of limited volatility… ‘first they bore you to tears, and then whammo!‘ The pros are distributing and/or accumulating for the next move and option players who guess right on direction can do very well once that breakout gets going.
The ‘whammo!‘ is likely incoming. Only thing is–we don’t yet know which way the pros will take this on a breakout. So, let’s look in both directions for some possible targets…
If they breakout to the downside of the short-term range (below 2612.50), the most likely major downside target would be the rising intermediate range envelope bottom, which is presently at 2397–but will start to rise rapidly soon. ES 2438.50 will be the next stop higher and it will sit there for a few days before eventually leapfrogging way up to 2523.25 on or about 5-Feb and then rapidly advancing north after that date. So, bottom line is to keep an eye on the bottom of the intermediate range envelope if this breaks bearish.
If the pros breakout to the north side of the short-term range top (above 2672.50) then we need to start watching the descending long-term range top (presently at 2822) as a next likely major upside target. You can see on the chart above that the long-term range envelope has been descending from the Top Spotter at 2951 all the way to its present location at 2822. The next notch down will be to 2818 and then it will stay there for some time–so for all intent and purpose, let’s just use 2818 as the next upside target if the pullback bottom is in.
So, head’s up right here inside the very small short-term trading range. Once the pros decide to give the futures a kick in the pants–we’ll be off on the next leg toward the major range envelope targets that I have pointed out above.
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