Let’s check in on the market to see where we are…
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On the monthly bar chart above, the current bar (November) is (so far) painting an inside bar (lower high and higher low) against October. The October range was 2947 to 2603 (same as long-term trading range at Stops and Targets).
We got the Top Spotter and Counter-trend Sell signal at 2947 followed by a bearish confirmation on a cross below the last higher monthly bar low at 2870. Now we are approaching the October low at 2603, which is a very important number as I will explain in the following paragraphs!
From a very-long-term perspective, the secular (or Very Long Term) bull market that began in 2009 remains intact so long as any pullback stays within the 12-month range envelope (channel shown as dashed lines on the chart above). The current channel bottom is at 2542.75.
Notice that bottom channel has only been touched twice in nine years!
Bulls would love to get back up to 2947 to challenge for new highs. Bears would love to see a break below 2603, which would open the floodgates of panic selling (and could also be a perfect place for pros to double up buying to both cover and reverse).
The takeaway from the monthly chart above is that in the grand scheme of things we are currently experiencing a typical corrective pullback in a secular bull market. So far, no change in the secular bull structure so long as the current pullback does not break below 2542.75.
The key number to watch is 2603, which is the October low. A break below would change the current ‘inside bar’ to a bearish trending bar (lower high and lower low).
Next, let’s zoom in to the weekly bars…
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The key number to watch on the weekly bars is also 2603. We are currently trading in week number three above that mark–and if price can hold above 2603 until the end of next week then we will have the next higher four-bar pivot low in the amazing stop/sweep reversal paradigm that I have been pointing out here since 2009.
To review for newer readers, we are tracking four-bar pivot lows in the weekly bar chart above. In only nine instances, since the bear market bottom in 2009, has price crossed BELOW a four-bar pivot low. In 7 out of those 9 pokes under the last higher pivot low–price immediately exploded higher after the stops were swept. The other two instances were the equivalent of ‘corrective’ waves 2 and 4 down for Elliot Wave enthusiasts. We crave those stop ‘sweep/reversal’ plays, as they have been PERFECT entries to ride the secular bull over the past nine years with very low risk entry points.
All good things eventually come to an end, and so it will be with this paradigm at some point in the future. We will know with absolute certainty when the character of the market changes when we get a pullback under a last higher pivot low that DOES NOT immediately reverse higher and cannot ultimately retake that level. Once that happens, the market will stop making a sequence of higher lows and will instead begin to make lower highs…which is the signature of a bear market start.
If price is driven under 2603 before next Friday’s close then selling could be intense underneath, and the four-bar pivot cycle clock would be reset to zero for finding the next higher pivot low. That would not be a pleasant outcome for bulls. If 2603 fails, then we are looking at 2560.75 as the next weekly downside target. If that happens, it could set up stop sweep/reversal play number 10 since 2009 because 2560.75 is the last higher pivot low–or it could be the edge of the cliff if the reversal does not occur and the paradigm ends.
Great buying opportunities are always terrifying if you don’t see the structure unfolding in advance…so keep that in mind if they keep driving this down. The pros always have a target in mind before driving the market down like this–and we have nine years of previous paradigm experience to draw upon–so be ready both bears and bulls if 2560.75 is broken.
Finally, let’s zoom in to the daily bar/range chart…
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In my last post I pointed out that the likely target for a bearish reversal was the gap at 2816.25. As expected, that is precisely where the pros yanked the rug (see blue arrow on the chart above). From that reversal at the gap fill I have drawn in the red short-term trident channel on the chart above. That channel should contain any short-covering rallies in the short-term leg down. If the trident is broken to the upside then it is invalidated.
Again we can see the immense importance of 2603. That low needs to hold for another week to build a higher pivot low structure. If it fails then watch out for the open gap at 2532.50 (see aqua blue line on chart above). That gap lines up with the bottom of the monthly channel at 2542.75 (shown as triple support on the chart above).
The first sign that the boot is coming off the bull’s necks will be a move above the previous day’s high… so for tomorrow, that will be a move above today’s high at 2696.75. So keep a watchful eye on the short-term stop/reverse line as we start to get near bottoming targets.
We could see a bullish ‘W‘ pattern form if 2603 holds… or we could see a bearish ‘M‘ pattern form if 2603 fails.
See why 2603 is so important?
Congrats on big gains for bears, but be very careful as the downside targets come into play. Bears have to be nimble to keep profits inside of a trading range–and 2603 is the bottom of the long-term and intermediate ranges (see ‘range envelopes’ on screen capture above). Keep a close eye on the short-term stop/reverse line and also on counter-trend buy signals at Stops and Targets for clues.
Head’s up! It’s all about 2603 right here.