In my last post I pointed out the new Range Envelopes Indicator, which now sits at the top center of every analysis page in Stops and Targets. The range indicator is a great analysis tool all by itself but is now fully integrated with the stop/reverse lines in all three timeframes. That is a big deal from an enhanced strategy perspective because it makes Stops and Targets far more nimble as it pertains to locking in profits–and that will be important when this very extended market starts to correct.
In a fully trending bull market the stop/reverse line follows the bottom of the range channel and that’s the case in the S&P 500 Futures example shown above. Note that the stop reverse lines in the summary tab are identical to the range envelope bottoms. For a complete explanation of what the arrow indicators next to the range envelope numbers mean and how the color-coding works be sure to click on the ⓘ symbol located just to the right of the ‘range envelopes’ table header.
After you have read the User Guide entry to get a solid foundation on how the Range Envelopes Indicator works then come back to this post and let’s take a real-time look at a random symbol to see how the analysis all comes together…
click image to enlarge
The screen capture for General Dynamics (GD) above is live as I am composing this post. Let’s take a close look at the Range Envelopes Indicator to help put together the analysis story for this stock…
Start by looking at the ‘last range signal‘ column and look for the oldest date there. That was 06-Oct-17 in the long-term timeframe row. Now look at the color-coded range next to that date and see that the long-term range high at 214.81 is colored dark red. Then find the next oldest date, which in this case is 02-Nov-17 for both the intermediate and short-term timeframe. Now look at the color-coding for those signals to see that 200.54 on the range low side is colored dark green. So, with a quick glance I now know that a range envelopes pullback alert was generated on 06-Oct-17 and that pullback went all the way to intermediate range support where a counter-trend buy alert was generated yesterday.
Next we take a look at the arrow indicators to the left of the range envelope numbers. In the example above a green arrow ↑ up tells us that the long-term is trending bullish. Note that the stop/reverse line is equal to the range envelope low. Next to the intermediate timeframe is a sideways green arrow ↔, which means the intermediate timeframe is currently rangebound and not trending–but has a bullish bias above the stop/reverse line, which does NOT equal the range bottom because price slightly overshot the intermediate stop/reverse line at 204.02 down to 200.54, which expanded the intermediate range lower. Finally, take a look at the red down arrow ↓ next to the short-term timeframe. That indicates that the short-term timeframe is trending bearish. Note here that the top of the short-term range envelope is equal to the short-term stop/reverse line at 208.50. See how that works? That envelope will continue to push the trailing stops lower until it eventually gets crossed over to the upside, which will be a short-term buy (to either cover or to go long).
So, now let’s put the range envelope information together with the rest of Stops and Targets’ analysis…
Notice that there was a Top Spotter signal at the Range Envelope pullback alert. Also notice that pullback went right to the intermediate stop/reverse line target and is now bouncing there. Also notice that the intermediate timeframe tab is shown as the timeframe ‘in play’. If you open that tab it will show that GD is currently inside of the ideal entry zone, where bears cover with nice profits and bulls can consider a new entry long.
There is no guarantee that GD will put in an intermediate bottom here, but so far it is doing exactly what Stops and Targets analysis showed was the highest probability from the start of the pullback. Now we watch to see who comes out on top here at the battle around intermediate support. If the bears end up winning then we can assume that the next target lower would be rising long-term support. If the bulls get a new foothold here, then next target higher from the counter-trend buy at 200.54 would be falling short-term resistance, which is currently at 208.50. Pretty cool, eh.
Now that we have looked at a more challenging analysis (GD example), take another look at the first screen capture above for the S&P 500 Futures. My take is that it’s all good above 2555.50, but those range bottoms are starting to squeeze in tightly as a result of the recent sideways-up action. This might be a very good time to look through your portfolio and consider using the Range Envelope Indicator to reevaluate your protective strategies. If you need some incentive for what can go wrong when the rug gets pulled on a former high-flier–have a quick peek at Tesla (TSLA) for inspiration and motivation.