Let’s take a quick peek at the current broad market configuration using the S&P 500 Futures Options as a proxy.
There has also been a MAJOR upgrade to Stops and Targets and I’ll use this post to show you how that update now dovetails perfectly with my charts that I often display here.
click on image to enlarge
Let’s start by looking at the monthly bars. The monthly bars are used by Stops and Targets to classify the ‘Long-Term‘ timeframe.
On the chart above, each candlestick bar represents the open, high, low, and close for one-month trading periods dating back to the 2009 Bear Market bottom.
Note that the current active bar (April 2019) has both a higher low and a higher high than the previous bar (March 2019), which had a high-low range of 2726.50 to 2866.
We see the same trend dating back three additional bars which creates a sequence of four consecutive higher lows and higher highs. That is the very definition of a bull market trend… ‘ a sequence of higher highs and higher lows‘.
The previous monthly bar is what determines the current ‘long-term range envelope’ that is displayed on the Stops and Targets summary analysis page (see the screen capture above) for each tracked symbol. To make it easy to find the long-term range I have circled that range envelope and drawn arrows to the corresponding long-term range marks on the summary bar chart. A small gold ‘ L ‘ marks the top and bottom of the long-term range envelope.
So, ‘long-term‘ in Stops and Targets always refers to the monthly bars and the monthly bar trading perspective of professional long-term investors. See how that works? (That’s very important to understand, so please re-read the previous paragraphs, if you need to, before moving on). If you still have questions, then feel free to ping me at the ‘send comments’ link at the top of this page and I’ll address those.
The long-term range envelope is updated at the start of each new monthly bar, so the latest long-term range envelope update occurred yesterday on 1-Apr as the new April bar, now in the second day as I type, began trading.
So, taking my chart together with Stops and Targets, we can see that the long-term is currently trending bullish (that is what the little green ↑ arrow means right next to the long-term range envelope). The long-term (monthly bars) turned bullish on 12-feb-19 and has advanced +5.66% so far.
We can also immediately see that the long-term trend would reverse to bearish on a cross below the long-term Stop/Reverse Line, which is currently at 2726.50. The Stop/Reverse line will always be the same as a range bottom (or range top when bearish) in a trending market.
The reason that Stop/Reverse lines are so important is because that is where stops tend to congregate for traders in a particular timeframe. In this example, long-term professionals are going to be trailing profits stops at or just below the Stop/Reverse line because that is equal to the previous monthly bar low.
Pretty cool how that all works.
click on image to enlarge
Next let’s take a look at the weekly bars for the same symbol on the chart above.
Stops and Targets uses weekly bars to classify the ‘intermediate‘ timeframe.
On the chart above each candlestick bar now represents the open, high, low, and close of one week of trading for the S&P 500 Futures Options.
Note that the current active weekly bar (April 1 to April 5) has both a higher low and a higher high than the previous weekly bar (March 25-29), which had a high-low range of 2,789.50 to 2840.75.
We see an intermediate trend sequence dating back one additional bar from a bounce off the intermediate Stop/Reverse line two weeks ago. Note that I have drawn in the historical location of the Stop/Reverse line as a color-coded line that looks a lot like a moving average (but is quite different) to the untrained eye. The trend bias was intermediate bearish under that (red) Stop/Reverse line and is currently bullish above 2805.25.
That previous weekly bar is what determines the current ‘intermediate range envelope’ that is displayed on the Stops and Targets summary analysis page (see the screen capture above). I have circled the intermediate range envelope and drawn arrows to the intermediate range marks (a small gold ‘ I ‘ marks the top and bottom) on the summary bar chart.
The intermediate-term range in Stops and Targets always refers to the weekly bars. See how that works?
That range is updated at the start of each new trading week, so the latest intermediate-term range envelope update occurred on Monday, April 1st as the new week that ends on Friday April 5th began trading.
Because the last weekly bar low (2789.50) was not yet higher than the intermediate Stop/Reverse line (currently at 2805.25) the stop/reverse line remains where it was last week and is still inside of the intermediate range. When the stop/reverse line is not equal to either the bottom of the range (trending bullish) or the top of the range (trending bearish) then the symbol is inside of a trading range and that is what the sideways arrow ↔ symbol means next to the intermediate range envelope.
If the current weekly bar low of 2844.50 were to hold through the close on this coming Friday, then the intermediate Stop/Reverse line would move up to that higher low on the following Monday and the sideways arrow would be replaced with a trending arrow like in the long-term timeframe example above. See how that works?
The Stop/Reverse line for each timeframe only moves when a trend develops–and then once price eventually crosses back under (or over) that line then we will see a ‘stop’ and a trend ‘reversal’ signal. How that all works is very clever.
The intermediate trading bias turned bullish on 11-Mar-19 and has advanced +3.30% so far. (That information comes from the trend table on the same summary page).
Again, the reason that Stop/Reverse lines are so important is because that is where stops tend to congregate for traders in a particular timeframe. In this example, intermediate-term professionals (swing traders) are going to be trailing profit stops at or just below the intermediate Stop/Reverse line because in this range-bound example, that is where the last higher low occurred (weekly bar of 22-Mar).
click on image to enlarge
And finally, let’s take a look at the daily bars for the same symbol on the chart above.
Stops and Targets uses daily bars to classify the ‘short-term‘ timeframe.
On the chart above each candlestick bar now represents the open, high, low, and close of one day of trading for the S&P 500 Futures Options.
Note that the current active daily bar (today, 2-Apr) so far has both a higher low and a higher high (just barely) than yesterday’s bar (1-Apr), which had a high-low range of 2844.50 to 2873.50.
We see a short-term trend of higher lows dating back four bars from a bounce on 25-March off the intermediate Stop/Reverse line. I have again drawn in the historical location of the Stop/Reverse line as a dashed color-coded line. The market was short-term bearish under that (red) Stop/Reverse line and is currently bullish above 2844.50. If today’s low ends up greater than the short-term stop/reverse line, then that line will move up to today’s low once the next day starts to trade. That is why narrow range day often lead to wide range days because the professional trading algorithms are triggered when those range envelopes are crossed. Again, it’s extremely important to understand that concept to get the most out of what Stops and Targets is telling you.
I have also drawn in the intermediate (thin solid line) and long-term (thick solid line) stop/reverse lines along with support and resistance targets on this chart. This layering technique helps to show how Stops and Targets brings multiple perspectives into play when determining the multitrend rating. It also shows overlapping timeframe strategy decisions and is all mirrored on the summary tab. Note that the stop/reverse lines are currently at ST = 2844.50, IT = 2805.25, and LT = 2726.50. Because last price is > ST and ST > IT and IT > LT we have a fully-bullish BULL 10 multitrend rating and that will remain so until price eventually crosses below the short-term stop/reverse line (which would change the rating to BEAR 1).
This new MAJOR upgrade to Stops and Targets core logic engine now brings all three timeframes into what S&T calls ‘aggressive mode‘, which is theoretically the fastest possible response time to a trend changes for each (monthly, weekly, daily bar) timeframe.
I have been using an advanced beta version of this software upgrade for several weeks and absolutely love it. With the range envelopes now being equal to real-time monthly, weekly, and daily bar high-low ranges, it just doesn’t get any easier to set following stops (for when a trend eventually changes at a stop/reverse line) and to easily determine partial profit exits as calculated targets are hit (often stops being run at range envelope edges).
It’s all good for bulls until price eventually crosses back under the short-term stop/reverse line. Once that happens, the next set of targets flip to intermediate, and then to long-term. Once the entire sequence runs its course then we eventually get a trending move exhaustion …and that is what top and Bottom Spotters are all about. That is exactly what happened at the last major Bottom Spotter on December 26, 2018… and we could be getting nearer to a potential Top Spotter that will come when this current move is exhausted.
*Note that price is closing in on the last line of confirmed resistance at 2879.50 shown on the daily bar chart above. That line is left over from the first major long-term sell signal (when support was broken) from the previous market top in September of 2018. So, let’s keep a close eye on things right in this area to see what happens as that major resistance is approached.
The example shown above is for the S&P 500 Futures Options, which are a great proxy for the overall market trend–but the steps for trade entry, risk protection, and profit-harvesting are exactly the same for any of the thousands of tracked symbols from Stops and Targets.