It’s been awhile since we’ve taken a look at the Big Picture for the broad market. I like to use the S&P 500 Futures Options as a proxy because they tend to lead the market… in other words, they are the tail that wags the dog.
We are at another important juncture here, and what happens next could be telling.
Let’s start by taking a look at the Stops and Targets analysis for the futures symbol ES and then break down each timeframe from long-term back to short-term…
The screen capture above shows the current analysis for ES (S&P 500 Futures Option). My takeaway from a quick glance here is as follows:
- All three timeframes are currently bullish and trending above their respective stop/reverse lines.
- There is an unconfirmed Top Spotter signal at 2961.25 (confirmation would be a daily bar close below 2916, and invalidation would happen on a move above 2961.25).
- I see two counter-trend sell alerts for the intermediate and long-term timeframes at the respective range envelope tops.
- The short-term timeframe is currently in play intraday at the 2932.75 stop/reverse line.
That all took me about 5 seconds to see on a glance… so now let’s take a look at the individual timeframes and compare using my charts…
On the chart above, each candlestick bar represents 1 month for the S&P 500 Futures. This aligns with Stops and Targets’ long-term timeframe. So let’s dig in for a closer look…
Here’s what I see…
- I always start by looking at the current candlestick range and compare it to the most recent bar to determine trend configuration. The current bar has a higher low and a higher high, so I know the bar is currently trending bullish in this timeframe.
- In a bullish trend what matters are the higher lows. So long as the market continues to make higher lows, the trend continues. If we get a move below the last higher low, then that is a trend change and the bears are in charge.
- The current last higher low on the monthly bar chart is 2844.50, which is the long-term stop/reverse line.
- On the chart above, the last trend change occurred in February when the last lower high from the bearish downtrend was exceeded to the upside at 2718.50. (Take a look at the screen capture from Stops and Targets above to see the trend start date and price is the same).
- The last thing that sticks out to me here is the test of the all-time high from September of 2018 at 2956.50. We have recently had a poke above to 2961.25.
Okay, so taking all of that into perspective, we are at the big target for the long-term reversal that started back in February. The reason that the all-time high is the target is because just above that line is where the last of the hard-core bear stops can be found. Those stops provide guaranteed buyers as bears are forced to buy-to-cover (buy to replace borrowed shares in the case of equities).
The poke up into new high territory activated many of those stops, and they would have been countered by professional bullish traders selling into them to take profits on the trade from the December low.
So, now it gets interesting…
The question is whether the market can sustain altitude once the dance between profit-takers and stop covering stops. If so, and the market is able to close a monthly bar above the all-time highs then we could see an explosive move higher once a new trading range opens. However, in spite of all the excellent economic news (thanks Trump administration policies), this market could be extended here and in need of a breather. That is what the current Top Spotter signal is warning about… but until/unless it is confirmed with a close under 2916 then it is just that… a warning to be careful on the long side.
On the chart above, each candlestick bar represents one week, which correlates with Stops and Targets’ intermediate timeframe.
My scan pattern is the same as for the monthly bars…
- The current bar shows a higher low and a higher high compared to the most recent week, so I know the bar is bullish and will remain so above the last weekly bar’s low at 2899.
- That assessment is confirmed on the Stops and Targets screen capture (at the top of this post) by the intermediate stop/reverse line at 2899 and also the ↑ green arrow next to the intermediate range envelope.
- The intermediate trend originally reversed in January and most recently turned bullish again at 2,780.50 on 11-Mar-19 after a brief dip below.
- I also note the test of the all-time high at 2956.50 and see the range-top pullback warning below last weeks high of 2942.75 (see ‘range envelopes’ on Stops and Targets screen capture at top of page).
The intermediate timeframe has been extremely useful for determining what I call stop sweep/reversals, and I have been documenting those occurrences here for many years. The last one (#10 ten since 2009) occurred at the shaded green circle on the chart above. The stop sweep line was at 2612.50, but you can see on the chart above that Stops and Targets beat my chart to the actual ‘official’ trend change signal with an intermediate reversal signal at 2528.50 in January. *However, I pointed out the VLT trendline bounce in real-time on the actual bottom day here, so I’ll claim the win there 🙂
So long as we continue to see those 4-bar pivot lows get reversed on the weekly bars, this bullish paradigm that has been in place since 2009 keeps chugging along.
Each candlestick bar on the chart above represents one day, which correlates with the short-term timeframe at Stops and Targets.
- Note that todays bar, so far, has a higher high and a higher low (bullish)
- The current price has also crossed back above the short-term stop/reverse line at 2932.75, so day-trading bears are forced to cover above that line (forced buyers).
The takeaway here is the same as the other two timeframes… we are seeing a test of the all-time highs and waiting to see who comes away with strength after the sellers and buyers trading around that line are all committed. Assuming that we don’t get a reversal and a sell-off before the close of the bar today, the short-term bulls are in the driver’s seat above the stop/reverse line at 2932.75…especially if we get a futures-driven push to close the day at a new high.
It’s really all about the resistance at 2956.50–in all three timeframes. If price can be pushed into a new higher trading range, then we could see new buyers enter above that line. Until/unless that happens, though, the market could be vulnerable to a pullback if this push higher runs out of gas before invalidating the Top Spotter at 2961.25
So, this is probably a good area to think about snugging up your stops on long positions–just in case.
Maybe think about it this way… if the pros have already run the stops above the all-time high and are positioning (short) for a pullback… why would they want to go back above 2961.25?
We’ll find out shortly how the pros are positioned… either they are silently rigged for an upcoming dive, or prepared to exert significant buying resources (expecting higher prices, if so) to sustain a breakout higher.
Seeing Top Spotters across all the Futures and many of the cash indexes makes me r-e-a-l cautious at this point until/unless those Spotters get taken out to the upside.