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Market context
Yesterday we wrote: “...Major Pullback2 is losing its selling momentum. If prices can survive August 23, they can survive a lot of dramatic events. So this suggests that Surge7 is around the corner. The Up Trend that started on 12/26/18 is likely to resume soon….Market internals have enough data at this point to send out a definitive bullish message in unison.” When market internals are all sending out the same bullish message, what it means is this. Under the hood, stocks were primed for buying again, not more selling. All that was needed was a positive catalyst of some sort. The positive catalyst came in the form of 2 imaginary phone calls from China during the night. It was enough to spark some bullish buying overnight, and a gap up for stocks in the morning. What you experienced in the last 24 hours was the power of market internals at work. They don’t always agree with each other. But when they are all shouting the same message, it literally pays to sit up and take notice. The rest of this article covers: Table of support and resistance levels Updates from market internals Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free.
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Market context
When we zoom out a bit and look at the big picture, we observe something interesting. The most dramatic price drop for Major Pullback2 came on August 5, four days after the first China tariff tweet of August 1. This was accompanied by a dramatic surge in $VIX $VXN. On August 23, we had a very dramatic day in terms of events:
This tells us that Major Pullback2 is losing its selling momentum. If prices can survive August 23, they can survive a lot of dramatic events. This suggests that Surge7 is around the corner. Major Pullback2 is approaching its end. The Up Trend that started on 12/26/18 is likely to resume soon. The rest of this article covers: Table of support and resistance levels Updates from market internals Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Updates from market internals
Market internals have now switched to a bearish bias again. They are not severely bearish, but they are on the brink of forming the kind of patterns that would be highly bearish. What this tells us is that under the hood, stocks are really struggling for direction. The rest of this article covers: Updates from market internals (more) Table of support and resistance levels Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Market context
Market has been jerking traders around like a puppet on a string. After the wildly bearish events of Friday 8/23, market participants were exhausted today. So the fact that the US didn’t go to war with any of the G7 countries, or Iran, or whatever, was enough of an excuse to start some bargain hunting. We discussed in our post last night how the weekly charts of all market internal indicators were starting to have a bearish bias. However, a bearish bias does not mean the start of an immediate bear market. For the short-term, it appears that $SPX $NDX are back into their range trade mode once again. There is a reasonable possibility that $SPX $NDX may be able to work their way to rise out of the current range soon. The rest of this article covers: Updates from market internals Table of support and resistance levels Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Weekend updates
By now you are likely to have read about Friday’s 8/23 fiasco. There is no doubt that the trade war with China is escalating in a major way. There are doubts that the problems can be fixed easily and quickly. There are 3 items that we want to draw your attention to. Taken together, they are major red flags, telling us that there are plenty of fundamental reasons for Major Pullback2 to morph into a new Down Trend. First, Fed Chairman Jerome Powell said in his 8/23 speech: “We have much experience in addressing typical macroeconomic developments under its policy-making framework … but fitting trade policy uncertainty into this framework is a new challenge.” Translation: The Fed has limited power to overcome the economics and financial problems brought on by a prolonged trade war. Second, the Bank of England Govenor Mark Carney said on 8/23: “There is a growing risk of a global liquidity trap.” Third, from Bloomberg: “U.S. companies are concerned about President Donald Trump’s threats to ban them from doing business in China, and they’re poised to halt new investments if the trade war escalates, the leader of group of top chief executive officers said.” As we write this, S&P, Nasdaq and Russell futures all gapped down at open, and are struggling for traction. Yen and Treasury contracts climbed. The yuan weakened and stocks are dropping sharply in Asian markets. These conditions certainly look very bearish for Monday. The rest of this article covers: Updates from market internals Table of support and resistance levels Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Fed Chairman Jerome Powell is scheduled to give a big speech tomorrow Friday at 10:00 AM EST from Jackson Hole.
Updates from market internals Market internals are back to sending mixed messages, showing that under the hood stocks are struggling for directions. NYSE and Nasdaq Advance/Decline lines turned up sharply today, which is bullish for stocks. NYSE and Nasdaq percentage of bullish stocks also turned up today, confirming the above bullish message. However ... The rest of this article covers: Updates from market internals (more) Major Support and Resistance Zones Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Was Major Pullback2 really due to economics fundamentals?
In preparation for Powell's speech on Friday 8/23, it is important to step back and review how we got here with Major Pullback2. As early as 7/25, market internals were starting to send out bearish messages. They were saying that under the hood, stocks were primed for selling. All that needed was a negative catalyst. We got not just one but two negative catalysts. FOMC disappointing 0.25% rate cut on 7/31, combined with the tariff tweet that almost resulted in a currency war on 8/1 rattled investors in a big way. $SPX $NDX $RUT dove between 8/1 and 8/5. However, despite talks inverted yield curve and other harbingers of a recession, the US economy is not on the verge of a collapse yet. In fact, a good chunk of the sell-off in Major Pullback2 was driven by systematic selling. According to Bloomberg: “In a week when the key part of the yield curve inverted and recession fear sparked an equity rout, systematic strategies posted $75 billion of programmatic selling, more than half of which came from index option delta and gamma hedging, JPMorgan’s analysis found. The rout pushed hedge funds’ equity exposure to near record lows and that of trend-following and volatility-targeting funds to the 27th percentile relative to history. Such low positioning is a positive signal for stock performance, according to Marko Kolanovic (JPMorgan analyst).” So the probability of a new major selling that will take stocks down to 12/24/18 level is low. In fact, the probability of $SPX $NDX retracing back to 6/3/19 is relatively low as well. At the same time, it is unlikely that the Fed will announce a 1% rate cut and the start of QE again this Friday. So the idea of stocks skyrocketing from today’s level immediately to a new all time high is also extremely unlikely. So what are the likely scenarios then? First, let’s get an update from market internals. The rest of this article covers: Updates from market internals Major Support and Resistance Zones Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Current market context
$SPX $NDX are currently in Major Pullback2 within the Up Trend that started on 12/26/18. Major Pullback2 arrived on 7/31, with plenty of warnings from market internals. Within the current Major Pullback2, we have had 2 bounces due to oversold conditions. The first was from 8/7 to 8/8. The second bounce was from last Thursday 8/15 to Monday 8/19. By the end of Monday, oversold conditions were disappearing. So today, prices pulled back by a small amount. However, for the most part, trading activities were subdued. No one wants to take a heroic stance before FOMC minutes tomorrow Wednesday, and Fed Camp in Jackson Hole this coming Friday 8/23. The rest of this article covers: Table of support and resistance levels Updates from market internals Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Current market context
In the big picture context, the Up Trend that started on 12/26/18 is still intact. $SPX $NDX are currently in Major Pullback2 within this Up Trend. Major Pullback2 arrived on 7/31, with plenty of warnings from market internals. Within the current Major Pullback2, since Thursday 8/15, $SPX $NDX had been in a bounce that resulted from oversold condition. As prices rise up, the oversold condition fade away. This bounce is now rapidly approaching a strong resistance level. Tomorrow Tuesday we are likely to see some interesting resolution as $SPX $NDX actually reach resistance. The rest of this article covers: Table of support and resistance levels Updates from market internals Trade scenarios to plan for Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. We would like to extend a warm welcome to the large number of members who have joined us recently. Please make sure you read this info to better understand our trading system, which is uniquely based on market internals.
Current market context In the big picture context, the Up Trend that started on 12/26/18 is still intact. $SPX $NDX are currently in Major Pullback2 within the Up Trend. Major Pullback2 arrived on 7/31. Market internals sent out this message in advance for multiple days, and it got very loud by 7/30. What started out as Dip6 became Major Pullback2 after FOMC announcement, fueled downward by the tariff tweet on 8/1. Within the current Major Pullback2, market has transitioned from short-term sell mood to short-term buy mood since Thursday 8/15, as the analysis of market internals below show. This analysis will show how long we can expect the short-term buy mood to last, and what to expect after that. The rest of this article covers: Table of support and resistance levels Updates from market internals Trade scenarios to plan for Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. |
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