Today is ‘Options Rollover Day’ and Futures Options have now rolled over from the March 2020 to June 2020 contract with a difference of -11.25 points from ESH20 (March) to ESM20 (June).
All previous chart numbers have been adjusted to reflect the new continuous contract pricing—so, for example, the Long Term stop/reverse line from the expiring March contract at 3181.00 now becomes 3169.75, and so forth.
In my last two posts I laid out the things that had to happen for a reversal to occur–and frankly, the stars could not possibly have been aligned better than they were for at least a snap-back rally. If we had a democrat president in office, I guarantee you we would be rallying right now–but I will repeat what I have been saying since this thing topped and started the engineered decline… This market is intentionally being FORCED lower using the futures–and if average people want to rightfully direct their rage at what is going on then look no further than the Fake News Media and their owners.
Like most, I watched President Trump last night–and I personally thought it was a bit of a disaster as far as the tone, delivery, and in the complete failure to dispel the panic that is being fomented. The Obama administration either actively encouraged (most likely)–or at the very least looked away when their allies jacked up the overnight futures markets for eight straight years from their offshore accounts. President Trump doesn’t get the same favors returned, as he is constantly being micro analyzed by his persecutors and so must do absolutely everything by the book. It is clear as day to me that this engineered crash is and was premeditated.
Okay, with all that said my giddy bear friends and my now terrified bull friends have one common thought in their minds…’when and where might this thing bounce?’. So, let’s take a look at the S&P 500 Futures Option charts (the tail that wags the dog) and see where things currently stand…
(click image to enlarge)
My analysis always starts from the very long term perspective and then progressively zooms in closer. The idea is to be able to see the Big Picture first. The monthly bar chart above, in essence, shows the entire forest. The next series of charts will then zoom in progressively until we see the ‘single tree‘ (a daily bar) and where it lies within the forest in the grand scheme of things.
In the monthly bar chart above each candlestick bar represents one month, or on average about 21 trading days. The time scale at the bottom shows that this chart presents the market since the initial start of the futures contract in the late 1990’s.
For someone who just wants the Cliff’s note version… a persistent bear market existed from March of 2000 until the March 2009 bottom. That bear market was indicated by the descending red trendline drawn off a series of lower highs. Once the market bottomed and then reversed we saw an initial rally that eventually broke through that red trendline. The day that trendline was broken to the upside was when the secular bear market officially ended.
In 2009, the place where the very first reversal signal occurred at 652.50. At that point we saw a long-term (monthly bar) buy signal generated at Stops and Targets when we got the first break above the series of monthly lower highs. After that turn the market started to create higher highs and higher lows on the monthly bars, which was a MAJOR paradigm shift.
Now, I direct your eyes to the parallel opposite of that 2009 signal to what happened in February at 3169.75. That was the first break of the last higher low on the monthly bars and is where Stops and Targets generated a long-term (monthly bar) SELL on 25-February (see the summary tab on the screenshot for Stops and Targets at the top of this page). At that point, the market began a pullback that no one could have possibly known at the time (except the perpetrators, of course) would be as severe as this has been. This month marks the first lower high and lower low on a monthly bar in some time (last one was in August of 2019).
The next thing I want to direct your eyes to is the dark green trendline support on the monthly bar chart above. That green line, is drawn off the last two higher 12-bar monthly pivot lows in the secular bull market. That trendline support currently sits at 2543
The blue trendline shown on the chart above (added in my post revision at 11:52 am) is the polar opposite of the red line (drawn off lower highs) where the bear ended. If we can’t get a hard bounce near above or near the blue trendline at 2420, then the viability of the entire bull market that has been underway since 2009 would come into question. In other words, that is about as far as the pros can technically go on a pullback before they actually break the bullish paradigm.
Trendline support is where they are going this morning, so let’s see what happens after they poke at these trend lines for a bit. This is maximum pressure being exerted on the bulls right here.
Bottom line is that we are still in a secular bull market above that blue line–but a significant break below would be ominous–and if that were to happen, the next obvious target lower would be the stops under 2319.50.
Next we move in a little closer to the forest to examine the weekly bar chart. Each candlestick in the chart above represents one week, or 5 trading days. This chart has been amazing for perfectly timing the stop sweep/reversal entries since 2009! There have now been 11 occasions since 2009 where the pros have driven the market (intentionally) below the last higher 4-bar weekly pivot low (see the shaded circles on the chart above to see the last 5 occurrences). In every prior case, the market was able to sharply reverse once those stops under the prior pivots had been exploited. Sometimes the entire robbery took just a single week to perpetrate, and other times the maneuver took multiple weeks. In the end, the result has always been the same since 2009. Once the stops are raided and selling is exhausted, the reversal begins. Recognition of this maneuver has been the single best method available to know when to buy the dip.
I have said here for many years now—>when the time eventually comes that the market is unable to recover back above the last higher weekly pivot low (as indicated on my chart above) then we will know right then and there that the amazing Weekly Bar Paradigm has ended.
The line that ultimately matters is up at 2846.50, that was where the first break of the last higher pivot low began the ‘stop sweep’ phase of the current robbery in process. What remains to be seen is how the ‘reversal’ unfolds, IF it unfolds. This is how the pros have been doing it thus far–so we tend to expect a continuation of the trend until/unless we see a break in the pattern.
Again, we see the same initial support trendline at the 2543 area that was shown on the monthly bar chart. The next lower trendline from the weekly bars is at 2479 and then the outer boundary is at the 2420 area.
In the last chart we now see the individual trees in the forest… each bar on the chart above represents one trading day.
Note that price has just reached that very long-term trendline support at 2543 from the prior two charts. The next minor support trendline lower is at 2479. The next line lower (secular bull market outer boundary) is at 2420
If none of those trend lines stop this then the stops under 2319.50 would be next.
However, remember the lesson of not being able to see the forest for the trees… we are testing that very long-term trendline support today and that is a pretty big deal.
The problem with this kind of decline from a bullish speculator’s perspective is that so long as there are large numbers of willing buyers trying to catch a knife–it just feeds the bears with ready buyers who need someone on the other side of their trade to sell short. So, in other words, the market can’t stop falling until speculators eventually give up hope and stop trying to catch the knife. Crazy, but that’s the way it works (unless someone decides to sit on the futures buy button somewhere down in the Caribbean offshore outlets).
The buyers will definitely come in when price is able to cross back above the short-term Stop/Reverse line–so that is the number to watch for both bears and bulls. As I type, that line is at 2858.25
Update at 10:17 am!!!
*An excellent trader friend of mine just pointed out that the BLUE trendline is actually the corollary of the red trendline that defines the outer edge of the technical bull market. To officially break the bull market that has been in place since the 2009 low would require a breakout below that line, which is currently located at about the 2420 area. He is absolutely correct, and so I have updated my monthly chart above to add that very long-term trendline and also revised my earlier post to include it.