click image to enlarge
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.