|
1:46 PM EST
$VIX is firmly rising up and SVXY dropping below key support. Major Pullback4 is resuming. But approach shorting carefully. We suggest you stick to s/t or day trading for today. Trade small. Tight stop. Quick profits. There likely will be another small bounce early next week to re-enter short. Remember: drop, bounce, drop, bounce, drop.... That sequence is the nature of a Major Pullback or a Down Trend.
0 Comments
Updated Friday 1/31/20 at 7:53 AM EST Why are we bearish? The real reason why stock prices are dropping is not due to the coronavirus. It's because the Fed is taking away the easy money. The Fed recently reduced its total holding of repo contracts by $14.3 billion. In the repo market, that's a big enough number for participants to start feeling the effects of liquidity drying up. And the Fed has plans to steadily reduce its holdings even more. Lack of liquidity is the number one reason why market sells off. And easy money is the number one reason why market takes off. So when the Fed takes away the easy money, the good times are essentially over. Sooner or later, the bullish rise will pause. And given that $SPX $NDX have surged so high in the last 4 months, the drop will be rather painful. So while you may find setups to successfully trade long positions based on $SPX $NDX right now, we caution you from deploying large chunks of your assets into the market at this time. Hoping that $SPX $NDX will surge to more and more all-time highs may bring you a lot of stress. Support & Resistance Levels The S/R levels have not changed since yesterday.  Market Internal Indicators  Yesterday we wrote: For the $VIX $VXN "failure to rise higher" test, we need to see:
This test is still progressing. We discuss more of it below. Market Projections In order for $SPX $NDX to become truly bullish again and for Surge10 to resume, the following conditions have to be true:
This combination is reliably bullish enough to enter long position based on $SPX $NDX. The question is whether or not this can be an intermediate-term position. The answer is we don't have enough data to answer that, but the odds are high that even if Surge10 resumes, it will be the last leg of Surge10. By the way, any other setup should be treated with caution and traded as day trading or very short term trades only. If either $SPX or $NDX suddenly surges up to Resistance2 again, there is a high probability that it’s a bull trap and therefore is a low-risk setup to test short positions against $SPX $NDX. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. 4:55: PM EST
We know some of you are quite anxious, so here's a brief update before tonight's full trading plan. Consider the following probabilities when making your next trading move. $SPX $NDX exceeding Jan 24 high: very low probability $SPX $NDX re-test Jan 24 high: med probability for the test, but high probability that the test will fail. $SPX $NDX re-test Jan 27 low: very high probability $SPX $NDX drop below Jan 27 low: med probability Basically the zone between Jan 27 low to Jan 24 high is the fighting zone between the bulls and the bears. There are buyers at Jan 27 low, but there are also plenty of sellers waiting at Jan 24 high. Right now, preliminary market internal data show a bearish reading still. More end-of-day data will become available soon and we will post the full analysis tonight. 11:06 AM EST We posted on Stocktwits at 10:54 AM EST that Major Pullback4 is resuming with full-on bearishness. You can start shorting $SPX $NDX $RUT. However, shorting is tricky business.
9:52 AM EST We recommend that you hold off initiating long-term or intermediate-term positions right now, whether long or short. $SPX $NDX are undergoing a brief shake-out period where price movements will shake out the weak bulls and weak bears alike. Stick to short-term or day trade. Trade small. Protect tightly. Take profits quickly. Or stay out.
There is a high probability that $SPX $NDX will attempt to re-test the zone from Resistance1 to Resistance2 before dropping for real as part of Major Pullback4. There is a low probability that $SPX $NDX will just climb from today's opening price and start surpassing Jan 24 high quickly. For the $VIX $VXN "failure to rise higher" test, we need to see:
If both $VIX and $VXN do this sequence, then the mood has switched to bullish. Otherwise Major Pullback4 still is in progress with lots of selling ahead for $SPX $NDX. Updated Wednesday 1/29/20 at 11:28 PM EST Our trading system based on market internal indicators issued a bearish signal calling for a short-term top on Jan 22. Our readers had 2 days of warning before market took a serious dive. Our trading system also identified in advance the bounce that started on Jan 28. We urged traders to exit long positions based on $SPX $NDX in preparation for Major Pullback4. Today market internals gave us another important message. Support & Resistance Levels  Market Internal Indicators  Even though $VIX and $VXN have not surged to a higher high yet, today they formed a pattern indicating they most likely will surge higher than Jan 27 highs. Similarly, SVXY formed a pattern indicating it is likely to drop below Jan 27 low. This turned all rows in the above table red, indicating that market internals are sending out a seriously bearish signal. Market Projections There is a high probability that the drop in prices for $SPX $NDX since Jan 24 is actually the start of Major Pullback4. Market took a little break to hear what the Fed had to say, but clearly participants weren’t truly thrilled. And now Major Pullback4 is likely to resume in earnest. There is a high probability that prices will go down substantially lower. Major Pullback4 may not bottom out until $SPX $NDX reach Support4. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. Updated Tuesday 1/28/20 at 11:58 PM EST Market internals issued their fully bearish signal on Jan 22. Our readers had 2 days of warning, then came the sell-off that started on Jan 24. FOMC announcement is tomorrow Wed Jan 29 at 2 PM EST. Stock market will likely go into a wait-and-see mode prior to announcement, but post announcement we are likely to see the resolution of the current drop. Will the Fed announcement finish the current medium dip and enable Surge10 to resume, or will it trigger a bigger sell-off that turns the medium dip into Major Pullback4? There is a fairly reliable way to determine this. Support & Resistance Levels  Market Internal Indicators  Market Projections There are a few reliable things to look for with market internal indicators to determine if the sell-off since Jan 24 is still just a medium dip, or if it will grow into Major Pullback4. Monitor both $VIX and $VXN after FOMC announcement. We want to see both $VIX and $VXN retest Jan 27 highs. If they fail to surpass these highs, then there is a high possibility that Surge10 is resuming. But if one of them surpasses Jan 27 high, the odds favor the bears and the arrival of Major Pullback4. The tricky part is that even if $VIX $VXN are going to rise in a big way, they tend to drop lower first from current levels, before they surge up. So don’t let the initial drop fool you. There needs to be a test of $VIX $VXN Jan 27 highs after FOMC. The test may occur Wed afternoon, or Thursday morning. Wait for it. In addition to $VIX $VXN failing to rise higher than Jan 27, we want to see SVXY testing and finding support again at the low of Jan 27. If this combination shows up, it’s a bullish sign indicating that the medium dip is done and Surge10 is resuming. Otherwise, Major Pullback4 has descended. Bull Trap If $SPX $NDX suddenly surge up big rising toward Resistance2 after FOMC, that’s likely a bull trap. This is especially true if you see price surging without $VIX $VXN testing their Jan 27 highs first. So beware. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. Updated Monday 1/27/20 at 11:58 PM EST We are traveling this week due to family medical emergencies, so tonight’s post will be short. We won’t be able to post tomorrow Tue eve, but will resume posting short analysis on Wed, Thu, Fri, and more lengthy weekend analysis. NOTE: FOMC announcement is Wed Jan 29 at 2 PM EST. Read more on market expectations here. Market Internal Indicators  The above table is now all red. This means market internal indicators are issuing a very bearish signal. Support & Resistance Levels  Market Projections There is a high probability that Surge10 has ended, and $SPX $NDX are starting Major Pullback4. There is a high probability that $SPX $NDX will do a quick bounce back up to Resistance1 or possibly Resistance2 by Tue or Wed. You may want to use this opportunity to exit long positions based on $SPX $NDX. This applies to intermediate-term and short-term positions. You can test short positions at Resistance2 or higher. We suggest short-term trades. Don't attempt to ride Major Pullback4 all the way down in a single ride. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. Updated Saturday 1/25/20 at 7:58 PM EST The Lunar New Year is starting off with a sharp drop in the market. There are certainly lots of potential catalysts for the sell-off on Fri Jan 24, including the coronavirus outbreak. But this medium dip has been in the making for a while as you know, and it is due to something else entirely. It’s the Fed who’s spoiling the party! The Fed giveth and the Fed taketh. The short story is that the Fed is winding down their cash injection into financial system. The original timeline was for the Fed to stop their repo operation by the end of January. But it is not entirely clear that they are going to accomplish this goal within January. This Reuters article explains the issues facing the Fed and the repo exit more clearly. But regardless of the exact exit date, the Fed is taking away the easy money, and in the process draining liquidity from all markets. It is Fed-injected liquidity, the sloshing of easy money, that has been driving the stock market to a new high. There is a high probability that Surge10 will end, and Major Pullback4 will arrive, when sufficient liquidity is drained from the system. There is also a high probability that Major Pullback4 will turn out to be the start of a new Down Trend in stocks. So, is Friday’s drop the start of Major Pullback4? If not, when can we expect it? Read on. Market Internal Indicators Market internal indicators have been warning us since Tue Jan 21 that under the hood, stocks were primed to enter into at least a medium dip. Small caps $RUT, which are more sensitive to liquidity, has been giving us a bearish message since Jan 17. But $SPX $NDX continued to blithely climb up. We cautioned you in the trading plan on Fri Jan 24: “While volatility looks ready to ebb, and complacency ready to rise again, the bearish divergence in $RUT tells us that we really should be cautious here. This is confirmed additionally by CBOE equity put/call ratio pattern. It tells us that stocks are likely to transition out of overbought by some substantial selling moves very soon.” Caution turned out to be the right approach because $SPX $NDX gapped up at the start of Fri and then promptly dropped hard. The possibility of a shallow dip followed by a medium dip turned into a medium dip immediately.  The above table is now mostly red, which means market internals are quite bearish. The key question is this. Is this drop just a medium dip, or is it the start of Major Pullback4? Recall our explanations last week:
Additionally, both $VIX and $VXN need to form a clear anchor-to-rise pattern on their charts. We are not seeing this exact combination yet either. So what these key indicators are telling us is that the drop on Fri Jan 24 is likely to be just a medium dip. It’s unlikely to be the start of Major Pullback4 yet. Support & Resistance Levels  Market Projections Long-term projection: Cautiously bullish for now for $SPX $NDX. The Up Trend that started on 12/26/18 should last at least until late February. But when Major Pullback4 arrives, it could become the start of a new Down Trend. We will have more data to evaluate as Feb progresses. Intermediate and short-term projection: $SPX $NDX $RUT are likely to test support levels on Mon and start rising again. This means the medium dip will be done soon, and Surge10 will resume. What follows may be the last leg of Surge10. However, until we have evidence that Surge10 is truly done, don’t bet against this bull in the intermediate term yet. Trade Planning Long-term investment portfolios: As long as the Up Trend is projected to stay intact, these portfolios can stay in stocks and buy the dip. Intermediate-term trades: If you have existing long positions based on $SPX $NDX, designed to ride all of Surge10, you can continue to stay long for now since Surge10 is not ending just yet. The end of the medium dip will likely come between Support1 and Support2. This zone is a good entry point for intermediate term positions based on $SPX $NDX, positions designed to ride the remainder of Surge10. In the Model Portfolio, we are planning to enter TQQQ with small partial entries at Support2 and a bit above it.  Short-term trades: $SPX $NDX $RUT are likely to retest Support1 on Mon Jan 27. There is a high probability that if the test is successful, $SPX $NDX $RUT will rise up to test Resistance1. Resistance2 and Resistance3, and the zone between them are likely to be tough zones to penetrate immediately for $SPX $NDX $RUT. So if prices suddenly surge into these zones on Mon, they may be low-risk setups for testing a quick short positions against $SPX $NDX $RUT. As with all short-term trades:
IMPORTANT: We have to be out of the office on the road for the next week due to family medical emergency. We expect to post daily trading plan, but we will not be able to provide any intraday updates. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. 1:03 PM EST
Conclusions: $SPX $NDX are now in the medium dip. $RUT has been in the medium dip since Jan 17. Per our trading plan last night, this dip is likely to end around Support3 zone. Please re-read "Trade Planning" section in our post from last night. Updated Thursday 1/23/20 at 11:56 PM EST Market Internal Indicators  Market internals have turned back to mix messages. While volatility looks ready to ebb, and complacency ready to rise again, the bearish divergence in $RUT tells us that we really should be cautious here. This is confirmed additionally by CBOE equity put/call ratio pattern. It tells us that stocks are likely to transition out of overbought by some substantial selling moves very soon. So we have to allow for the possibility of a shallow dip happening this week, followed by a quick price rebound, and followed by a medium dip next week. These are the kinds of rapid moves that can wreck a lot of accounts for bulls and bears alike. Support & Resistance Levels The S/R levels have not changed from yesterday.  Market Projections Long-term projection: Bullish for for $SPX $NDX. The Up Trend that started on 12/26/18 should last at least until early March. Short-term projection: Briefly bullish again for $SPX $NDX, but… Intermediate-term projection: There is a high probability that $SPX $NDX are forming a shallow dip this week, followed by a quick price rebound, followed by a medium dip next week. The medium dip has already started with $RUT. Trade Planning Long-term investment portfolios: As long as the Up Trend is projected to stay intact, these portfolios can stay in stocks and buy the dip. Intermediate-term trades: If you have existing long positions based on $SPX $NDX, designed to ride all of Surge10, you can continue to stay long for now since Surge10 is not ending just yet. However, you do need to decide whether you want to weather the upcoming medium dip, or get out when $SPX $NDX retest Resistance1, and re-enter at the end of the medium dip. The end of the medium dip will likely come around Support3. That’s a good entry point for intermediate term positions based on $SPX $NDX, positions designed to ride the remainder of Surge10. We are planning to enter TQQQ at Support3 in the Model Portfolio.  Short-term trades: There are opportunities for you to day trade, or do short-term trades, in either long or short positions based on $SPX $NDX $RUT. $SPX $NDX are likely to retest Support1 again tomorrow. If successful, $SPX $NDX will likely climb back up to test Resistance1. $RUT is likely to test Support2. If successful, $RUT will likely climb back up to test the high of today Jan 23. As with all short-term trades:
Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. Updated Thursday 1/23/20 at 12:52 AM EST Market Internal Indicators  Market internals have turned substantially bearish under the hood. We’ve been writing that $SPX $NDX $RUT will stay bullish until we observe the bearish combination below.
We now have this condition. This condition causes the first 3 rows of the above table to turn red. And when they do, it is a reliable indicator that $SPX $NDX are forming a short-term top, potentially leading to a medium dip. One important bearish divergence to note is that of $RUT. Small caps has been dropping sharply since Jan 17 while $SPX $NDX climb higher. There is a high probability that $SPX $NDX will follow $RUT down starting tomorrow. Support & Resistance Levels  Market Projections Long-term projection: Bullish. The Up Trend that started on 12/26/18 should last at least until early March. Intermediate-term projection: Bullish. Surge10 is still intact and will resume its climb after this medium dip. Short-term projection: Bearish. Surge10 is forming a short-term top and about to enter a medium dip for $SPX $NDX. The medium dip has already started with $RUT. Trade Planning Long-term investment portfolios: As long as the Up Trend is projected to stay intact, these portfolios can stay in stocks and buy the dip. Intermediate-term trades: If you have existing long positions based on $SPX $NDX, designed to ride all of Surge10, you can continue to stay long for now since Surge10 is not ending just yet. You can also choose to lock in the profits of your intermediate term positions in $SPX $NDX now, and re-enter at the end of the medium dip. The end of the medium dip will likely come around Support3. That’s a good entry point for intermediate term positions based on $SPX $NDX, positions designed to ride the remainder of Surge10. We are planning to enter TQQQ at Support3 in the Model Portfolio.  Short-term trades: You can day trade or do short-term trades of short positions based on $SPX $NDX $RUT. Trade small. Use tight stops. Take quick profits. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. |
Archives
December 2024
Categories |
RSS Feed
|
|
Copyright (c) 2019-2024 LOOK Systems LLC
All rights reserved. |