It’s been a little while since my last post so thought I would post an update today to see where we are and to answer some questions I have been getting. Let’s start by reading the tea leaves on the summary analysis tab from Stops and Targets for the S&P 500 Futures.
Many of you have noticed that the long-term trading range and stop/reverse line are different from yesterday. The reason is because today is the first day of the new trading month (April). What you are seeing reflected all across Stops and Targets symbols is the updating of the long-term timeframe to reflect the now closed March trading range.
For example, I received an excellent question earlier today asking me why there is a new signal shown for a range bottom counter-trend buy on the long-term range.
A little background information here is very useful to help you better understand how Stops and Targets evaluates timeframes:
- Long-term is based upon MONTHLY bars
- Intermediate-term is based upon WEEKLY bars
- Short-term is based upon DAILY bars
The reason that new signal appeared is because today is the very first opportunity for the algorithms to evaluate current price against the now-closed March bar range…
click image to enlarge
Each bar on the chart above represents ONE MONTH of trading for the S&P 500 Futures.
Take a look at the March monthly bar range by examining the low and high of the candlestick ‘wick’. That range was 2,174 to 3,125.75
…now, look back to the screen capture from Stops and Targets above and note the long-term range envelope numbers. Yep, the exact same. See how that works?
So, back to that long-term range bottom counter-trend buy alert.. Since the current price is currently crossing over the March range envelope low, the system sees it as a possible range bottom crossover and therefore as a potential counter-trend rally point. (Don’t fret too much if that last part didn’t make sense. That’s why Stops and Targets is so cool. It works these things out for us that may not seem intuitive at the time–but, nonetheless are absolutely essential when considering trading strategy.)
To fine tune that long-term signal–>look at the long-term tab and notice that the long-term trend is bearish currently and is targeting the range envelope bottom at 2174. Price may or may not get back down there–but underneath that line is where a huge trove of bull stops is now resting courtesy of the bottom-pickers that have been on a buying frenzy since the bounce. If the pros want to go down to collect sellers, that is where they are going to go. If not, then we could eventually get a counter-trend buy setup indication once price gets inside the 3:1 risk ratio window for a counter-trend buy in the long-term. The alert is warning us that we could get a counter-trend rally from somewhere down in that area most likely. Of course, if the pros decide to take out that low under 2174 then all counter-trend bullish setups are off.
Bottom line… the long-term trend turned bearish at 3169.75 on February 25th. Today, the long-term stop/reverse line was automatically moved lower to 3125.75 to start locking in profit on the trend. As each month goes by, so long as we see a LOWER HIGH in a bearish monthly bar trend the stop/reverse line will move to that lower high on the first day of the new month.
The long-term trend will remain bearish until that line is eventually crossed to the upside. However, bear market rallies can be very profitable for those who know when and where to jump in–and also when and where to get out. Those details are just as important for bulls as they are for bears.
To show a great example of that point–let’s move in next to examine the intermediate time frame…
The screen capture above shows the intermediate tab selected for the same symbol at Stops and Targets.
Remember, just as the long-term timeframe is based upon monthly bars–the Intermediate timeframe is based upon WEEKLY bars…
click image to enlarge
Each candlestick bar on the chart just above represents ONE WEEK of trading for the S&P 500 Futures.
Note that the current intermediate range envelope is exactly the same as the prior week’s range of 2,174 to 2,634.50.
The current live weekly bar HIGH is presently 2635.75, which was just enough to touch the range envelope top and perhaps tickle some bear stops slightly above the range envelope high–and when that happened Stops and Targets showed a range envelope resistance signal.
When that happened, price was just below the intermediate stop/reverse line at 2634.50 and perfectly positioned inside of the red-shaded ideal sell zone between 2525 and 2634.50. That shaded zone was also the perfect exit for the last counter-trend long signal which was a range bottom rally alert at 2230.50 on 24-Mar-20
We can see today’s selloff launched from within that ideal sell zone setup.
Aha, you say! That is VERY cool! Yep, it sure is… Counter-trend rally alert at 2230.50 up to range envelope resistance at 2635.75 and then back short there with the trend and currently looking for new lows–but with some hefty respect for the potential long-term counter-trend rally alert.
The pros sometimes leave breadcrumbs that betray their intent, and we’ll get into those in the closing paragraph–but first, lets take a peak at the short-term tab next…
The screen capture above shows the short-term timeframe tab from Stops and Targets for the same symbol.
The short-term timeframe is based upon DAILY bars…
click image to enlarge
Notice that yesterday’s daily bar range was 2,555.75 to 2,635.75
The short-term timeframe had been trending bullish until today–but once price crossed below the LAST HIGHER LOW the short-term trend reversed and flipped bearish at 2,555,75.
You can read all the details in the commentary on the short-term tab above. Note that at the close of today’s bar the stop/reverse line will stay right there at 2555.75. If we get a lower high tomorrow that short-term stop/reverse line will move down to that bar’s high to indicate a bearish trend is underway.
So, in short, lower highs in a bearish trend drags the stop/reverse line lower. Higher lows in a bullish trend drags that stop/reverse line higher.
If there is no trending move underway–then the stop/reverse line stays put during a sideways trading environment.
The same thing happens over and over again–and that is how the stop/reverse lines work. They simply follow lower highs down in a downtrend or lower highs up in an uptrend to lock in accrued profits. 🙂
For a recent illustration… note that the previous bullish trend change occurred on a cross above the last lower high at 2386 on 24-March and then the stop/reverse line followed that trade up to the eventual sell today at 2555.75, which was the last higher low from the previous bullish trend set yesterday. Now, 2555.75 will remain the stop/reverse line until a new trend eventually drags it away to one side or the other.
And THAT is how you remain in the trend as long as possible is a particular timeframe. It works exactly the same for monthly, weekly, daily, and even hourly bars.
And with this post I am hoping to have handled most of the recent questions that have been emailed to me (there were a LOT of ’em in the past week).
One last thing…
Unfilled breakaway gaps often indicate intent by the pros…
Magenta lines on the daily bar chart above show unfilled gaps DOWN. Now you can see why I was pressing the point here that the pros were INTENTIONALLY forcing the market lower after four unfilled gaps in a row off the top!
Well, looky what happened just after the recent bounce… there was an opening gap HIGHER at 2220.50 on 24-March. That was a decent hint along with the range bottom counter-trend buy alert that the pros were ready to go up for a bit. They ultimately went EXACTLY to the intermediate stop/reverse line and then we got an opening gap DOWN today at 2569.75.
The S&P 500 Futures players loathe unfilled gaps, so those recent two open gaps at 2569.75 and 2220.50 may define the near-term targets and possible restraints for a consolidation zone, if that is indeed the pro’s intent going forward.
Put that open gap lower today at 2569.75 together with the long-term range bottom counter-trend rally alert and the open gap at 2220.50 and perhaps we have a fairly decent roadmap for near-term trading range expectations between those gaps.
Pretty crazy world out there right now, so all the usual caveats apply.