Quadruple Witching Day and Monthly Outside Bar Study

Today is quarterly ‘Quadruple Witching Day’ when equity options and futures, and index options and futures all expire on the same day.  As is often the case, the market has been wild leading up to expiration as the pros undoubtedly look to maximize their leveraged gains, while minimizing the gains (and maximizing the losses) of those unfortunate souls sitting on the other side of their positions.

In a previous Big Picture post, I mentioned that the monthly bar structure was bearish at the time, with a lower high and lower low, and I commented that the odds favored the month (June) staying that way.  The reason I wrote that without much hesitation at the time was because we had just seen an outside bar on the May monthly bar, and as I will explain below the odds greatly favored my assumption.

An outside bar is when both the high and the low range exceeds the range of the previous bar.  For example, The April monthly high was 2960.50 and the May high was 2965.25.  The April monthly bar low was 2848.50 and May low was 2754.

 

Professional traders HATE outside bars in any timeframe.  Why, you might ask?  Because nearly every trading strategy is challenged under such circumstances.

Let’s take the May bar for example:

The first victims were the bears.  At a new all-time high, there was not one single bear on the planet with a profitable position on ES.  The bears had been squeezed into total capitulation.

Once a pullback started, many bears were likely initially afraid to chance a counter-trend move down from the top.  Note here that Stops and Targets nailed that start down with a Top Spotter and a counter-trend sell on the range envelopes.  Those without S&T, or those without trust in the signal would have found it very difficult to engage psychologically at that point.  The pros are great at beating people up who are right on an idea but early in implementation.

Next to be abused were the momentum breakout buyers who were overrun on the quick move down.  Those who didn’t cough up positions that may have been in the green at the previous close–but bright red (especially after a gap down open on individual equities)–often paid a terrible price.

Then next came the range traders who bought the dip to support.  They also got a big surprise to the downside, just like the momentum guys.

Following next were the bullish trend followers who saw big paper gains evaporate when their trailing profit stops were activated.  Fortunately for many they still had profits from diligently moving the stops higher to lock in gains.  Still, it is never fun to watch the numbers dwindle–even when it is a net gain at the end.

Those bulls who hung on expecting a bounce that didn’t come when they expected it, watched profits turn to losses–sometimes BIG profits turn into BIG losses if they failed to react in time.  Many of them ultimately succumbed to the intense squeeze pressure to the downside when the losses reached the ‘uncle (or max pain)’ point.

Then the tables suddenly switched and in reverse order the bearish breakout sellers saw their position reversed and the winners to the downside suddenly had the exact same thing happen to them as their bullish counterparts.  Bearish winners turned to losers and the upside squeeze has been intense ever since.

Often, the ONLY traders who do well in an outside bar are the countertrend traders who buy the stop sweep/reversals and then target the other side of the range.  Note that Stops and Targets signaled every one of those counter-trend entries.

Summation:  Outside bars suck for just about everyone–but the stop/reverse lines at Stops and Targets can help to override the powerful instinct to fight against what is happening, but only if you let them.

Outside bars work against every logical human instinct and my guess is there are a few heads nodding in agreement out there right about now.  If you’ve had a tough month (or two) in the market–don’t feel too bad about it.  You likely have a lot of company out there.  This is by far the toughest environment to trade in–and if you have done well then you should be very proud of yourself for a job well done.

 

So with all that said, let’s dig a little more deeply into the monthly outside bars phenomenon on the S&P 500 Futures…

 

 

Outside monthly bars are by themselves relatively rare on the S&P 500 Futures.  In the entire history of the contract, dating back to its inception 1999, there have been only 29 outside monthly bars out of 240 total months.

Note that more often than not, an outside bar favors the direction away from the stop sweep/reversal.

I have marked all outside bars with blue dots on the chart above.  The last time we had one was was back in November of 2016 (US Presidential Election month).  So, the appearance in May of an outside bar was certainly a long time in coming.  It is/was a noteworthy event and definitely worth pondering going forward as i will explain below.

 

 

 

As I type, however, the June monthly bar just did something VERY RARE INDEED!  We now have a June bar range that exceeds the May bar high and low… so we have just experienced back-to-back outside bars on the monthly S&P 500 Futures contract!

How rare is this you ask?  …well, so rare that it has only happened once before in the entire history of the contract (240 total months)…

The chart above shows the only other previous occurrence of back-to-back monthly bars on the S&P 500 Futures.  It happened way back in June and July of 2007.

In what might be worth considering–that double outside bar happened near the end of a blow-off top during the Bush administration rally that had been underway since the 2002 bottom (eventual stabilization after the 9-11 terrorism attacks against America).

After the pros finished distributing and repositioning in 2007, they absolutely drove the market into the ground to prepare the stage (in my opinion) for the unveiling and the intentional installation of their ultimate global socialist stooge, and the worst president this country has ever had.  (Too harsh, I briefly ponder to myself?  Nah, run with it, I decide…)

 

Warning:  those with delicate social sensibilities might want to skip the rant section that follows…  🙂

<rant/>

 

In what is somewhat reminiscent of the bathroom scene from the movie  Trading Places where the scheming brothers had a one dollar bet that they could take the lowest human they could find and make him look successful… and furthermore in what perhaps was the biggest FU to average American citizens of all time, the globalists hand-picked a truly repulsive and imminently unqualified individual, whose name was eerily similar to the most hated man of the time (Osama Bin Laden) and they made him President using the immense (at the time) power of their captive globalist media.

Had there been no President Obama, there never would have been a President Trump.  And such will be a similar ultimate real-life consequence for the arrogant globalists, one hopes, as it was for the brothers in that movie.

 

The election of Donald Trump in 2016 was the average American’s giant FU right back to the globalists… who clearly, were absolutely stunned and enraged at the devastating and previously unforeseen threat to their global dictatorship fantasies (and also fearing looming future incarceration perhaps).

Obama wasn’t alone in his audacious betrayal of America.  The list of perps is long and absolutely includes (in my opinion) the invisible hand that guides the markets.  Those folks have everything to lose if their globalist scheme to subjugate and destroy everything America stands for ultimately fails.

Those globalist folks absolutely loathe and fear President Donald Trump–and so it wouldn’t surprise me one bit if the powers that steer the market ultimately try to implement the same market beatdown tactic on President Trump sometime in advance of the upcoming 2018 Elections.

The giant multi-national corporations that have run the show (into the ground) are the sworn enemy of economic nationalism.  They absolutely must defeat what Trump stands for in order to restore their plan.  His biggest current bragging right is American prosperity as a result of globalism’s dramatic retreat under his common-sense policies.  They have tried everything in their bag of tricks to stop him, but have failed miserably, so far.  They NEED the American economic prosperity to be upended–but Trump has skillfully boxed them in by taking away many of the weapons previously used to undermine American workers and American industry.  Now, either they invest in American prosperity or pay the stiff tariffs to finance their opposition.

It is an absolutely brilliant strategy.  I think President Trump is giving the globalists an opportunity to join the party–and those who do will ultimately prosper, but those who don’t will suffer greatly.  Ask the Chinese how they are enjoying bearing the brunt of the economic consequences.  Other countries and companies are carefully watching to see the outcome of this epic battle.

So, do you think with all that is at stake (trillions of dollars) there isn’t a real risk that we will see a last desperate effort to upend Trump’s major campaign centerpiece (the economy)?

Just a theory, of course, but something to continue to be watchful for.  As always, Stops and Targets will provide the signals–we just have to be cognizant that if/when that time comes.  It likely won’t ‘feel’ right to initiate the trades and to honor the stops.  That’s what the past two months has given us a little taste for.

</rant>

 

The double outside bar phenomenon of the past two months has been a great opportunity to critically self-evaluate trading discipline and technique.

My own personal suggestion is to trust the Stops and Targets stop/reverse lines when the going gets tough.  Stops and Targets doesn’t ever ‘feel’ anything.  It’s purely logical, and a great tool and trusted second opinion guide to have–especially when the pressure is on.  If the Stops and Targets analysis isn’t agreeing with what you might be ‘feeling’ at the time, then seriously consider reevaluating the trade.  It’s all there in the various S&T signals–trending, counter-trend, range trading, etc., with helpful risk management suggestions.

Have a great weekend everyone!

…my .02