Updates 6:08 PM Friday 5/1/20 After reviewing market internals end-of-day and end-of-week data, we've decided that there is a strong case for this being the start of the transition to Dive2. For that reason, we scaled into TZA after hours with our Core1 position. We have a buy limit order for Core2 shown below. There are a number of signals that strengthen the case for this being the transition to Dive2. We will discuss them this weekend. For now, we just want to share with you this IWM 5-minute chart, updated from earlier today.
This may be the early part of Dive2, or it may be just a transition into Dive2 where price may oscillate downward and upward a couple times before rolling over. Updates 2:22 PM Friday 5/1/20 Let us review chart actions before the weekend. Is Bounce4 starting to take root? Not yet.
Is Dive2 starting? Not yet. In our experience, after a dramatic climb like what we've seen since 3/23, that there has to be multiple attempts to rise, and multiple failures to rise before the bulls are ready to give up. But even if this theory is wrong, and indeed Dive2 is starting, then take a look at IWM 5-minute chart below. Even if Dive2 has started, and IWM is forming Thrust1 on this 5-min chart, we don’t want to enter at the possible end of a thrust.
Updates 11:02 AM Friday 5/1/20 Market breadth dropped down sharply this morning, showing that the selling mood is likely to continue through today. $VIX $VXN both gapped up sharply. The complex W bottom that we showed on $VIX hourly chart last night is now having a nice follow through. This means volatility is likely to rise some more in the short term. At the minimum, it looks like $VIX $VXN can rise up for long enough to force $SPX $NDX $RUT down to their strong support at the 200-hour EMA line. This is also around our Support2 line for most of them. An astute member asked how can we be sure that Bounce4 will happen. Actually there is no guarantee that Bounce4 will happen at all. However, there is a high probability that $SPX $NDX $RUT will all attempt to form Bounce4. What that means is that when $SPX $NDX $RUT reach the strong support level discussed above, they are likely to anchor themselves in some kind of pattern on their 5-minute charts (Knot, V/W). This is where buyers are very likely to step in to enable $SPX $NDX $RUT to rise up from support. This upward movement will be the attempt to form Bounce4. If there are enough buyers here, Bounce4 will follow and will end up at a higher level than Bounce3. If not enough buyers, we will likely see some kind of head & shoulder pattern. The appearance of such patterns will be the confirmation that Bounce4 had failed and Dive2 is likely to start at that point. Updates 2:16 AM Friday 5/1/20 To summarize the actions today:
Let's take a look at the count sequence on SPY hourly chart. We want to drill down into SPY because we haven't done $SPX SPY charts in a while. Also, we chose SPY to show how you can make use of the after-hours price actions when they are relevant. The after-hours price actions are in the yellow vertical bars.
We think $NDX $RUT are likely to follow the same sequence as $SPX SPY. We also want to share with you the following $VIX hourly chart. It shows a more complex rising multi-W bottom. $VIX may not rise much higher than its own 200-hour EMA line. But at the minimum, rising $VIX supports our projection that $SPX $NDX $RUT are snapping back to anchor at support. Our trading plan:
We will share our entry and exit for Core position trades with you. These are positions that last multiple days, possibly more than one week. We prefer not to continue sharing the Quick position trades. There are too many of them. They require quick decisions that are sometime very hard to explain quickly. Posting these trades clog up the alert streams and the blog posts. So we are going to hold off posting them. 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 up 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. Proshares UltraPro and UltraPro Short ETFs Direxion Leveraged and Inverse ETFs Why 3x ETFs like TQQQ lose money over the long term The risks of investing in inverse ETFs Simple explanations of contango and backwardation
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Updates 6:57 PM Thursday 4/30/20 Even though our position did not get stopped out before closing, we did not like the failure of the Knot Pattern, and the after hour actions. So we manually exited all TNA. We are pivoting to be ready for TZA entry, but we are not buying after hours. To summarize the actions today:
But Dive2 is not about to launch tomorrow yet. There is a transition and confirmation period before the late-arrival bulls will give up and rollover. Later tonight we will be posting updated chart analysis, along with analysis of $VIX and market breadth. There will be an updated S/R table as well. It's epic! Updates 2:48 PM Thursday 4/30/20 $SPX $RUT are forming decent looking Knot Pattern on their respective 5-minute charts. So we decided to scale in TNA on the early side with a tight stop. Updates 1:52 PM Thursday 4/30/20 All Tied Up In A Knot $SPX $RUT still have the opportunity to form a Knot Pattern, bring in short-term buyers to possibly lift them up into Thrust5 (5-minute chart). To help you track this key pattern, we want to highlight some key characteristics of a Knot Pattern to look for. Updates 11:30 AM Thursday 4/30/20 Why The Drop This Morning Yesterday we shared these 2 observations with you: Gilead's big gap up happened on 4/17. Today's real news announcement produced a rise too, but GILD is still a tad shy of the high of 4/17. This is a continuation of "buy the rumors, sell the news" pattern. Based on the chart of NYSE A/D net issues ($NYAD), tomorrow 4/30 may be a profit-taking day. $SPX $NDX $RUT gapped up at open yesterday partly due to Gilead's news, but also partly due to participants buying ahead of the Fed. However, the Fed did not come out with any specific actions, or any big bazooka. Just a vague promise to not hike rates any time soon. This was not enough to juice the market up higher. So the response was a non-response right after FOMC announcement. Then came the after hour bull trap set up in futures market. Then came the overnight steady selling that led to the gap down this morning for $SPX $NDX $RUT. Significance of Thrust5 We should warn you that Thrust5 on the 5-minute charts for $SPX $NDX $RUT may turn out to be a failed Thrust5. At best, we think that Thrust5 will finish forming at Resistance1. But there is a good chance it may not even reach the highs of 4/29. To put things in perspective.
There exists a strong possibility that after Bounce3, we may see a brief consolidation period before Dive2 arrive. Dive2 is the resumption of the Down Trend. Updates 10:49 AM Thursday 4/30/20 Updates 10:38 AM Thursday 4/30/20 Updates 10:28 AM Thursday 4/30/20 Updates 10:02 AM Thursday 4/30/20 The big gap down this morning means that Thrust4 is done for $RUT IWM on their 5-minute charts. On Wednesday 4/29, we wrote at 3:50 PM: If you want to capture part of the rise up, the better setup to enter is when $NDX $RUT $SPX all pull back to the 200 EMA line, or at least below the 50 EMA, on their respective 5-minute charts. They also need to form a Knot Pattern here, and not just fall straight through. If you enter at a Knot Pattern at this support level, you can place a stop just below and test the potential rise.
We are waiting for the Knot Pattern to form around this support level. Recall that the Knot Pattern requires that the 20 and 50 EMA lines and price candles all have to converge at the 200 EMA.
Keep in mind that after Thrust5, Bounce3 will end. If Thrust5 fails to form, Bounce3 will also end. (Recall that Bounce3 is essentially Thrust3 on the hourly chart.) After Bounce3 ends, before any upward thrust can happen, $RUT IWM $SPX $NDX will have to drop a bigger distance to snap themselves back to support, most likely at the 200-hour EMA line, before they can rise higher to form Bounce4. Updates 1:14 AM Thursday 4/30/20 Below is the S/R table again for your convenience. Counting Thrusts On Hourly Chart The messages from market internals are still mixed. So we need to find a way to gauge how far along a particular price segment is progressing. The thing we all want to know is "are we done with this directional move yet?" There is no easy way to tell. But by tracking the thrust counts, we will have an idea if we are approaching the end and price is about to reverse in a major way. We have been discussing the concept of upward and downward thrusts on the 5-minute chart. Let's take a look at how we can use thrust counts on the hourly chart to determine if a major segment on the hourly chart is about done. We use IWM hourly chart below to illustrate some key concepts because it has the clearest moves. In sharply trending market, there can be up to 5 thrusts visible on the hourly chart.
Counting Thrusts On 5-minute Chart So how will Thrust3 finish forming on IWM hourly chart? To answer that, let's analyze the thrusts on IWM 5-minute chart.
Observations Bounce3 is a sharply rising up segment. Therefore the odds of Bounce3 forming 5 thrusts on the 5-minute chart is high. On the other hand, we are not sure if there will be more than 4 Bounces (i.e. 4 upward thrusts on the hourly chart.) Bounce4 may be the last bounce that pushes $SPX $NDX $RUT up higher, thereby possibly forming the spire top that we showed you on the monthly chart for May 2000 and May 2008. The paths we outlined above are not guaranteed of course. But we think something approximating these paths will unfold into next week. Our Trading Plan For Thursday 4/30:
Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end up losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. Proshares UltraPro and UltraPro Short ETFs Direxion Leveraged and Inverse ETFs Why 3x ETFs like TQQQ lose money over the long term The risks of investing in inverse ETFs Simple explanations of contango and backwardation Updates 3:50 PM Wednesday 4/29/20 Observations Gilead's big gap up happened on 4/17. Today's real news announcement produced a rise too, but GILD is still a tad shy of the high of 4/17. This is a continuation of "buy the rumors, sell the news" pattern. Based on the chart of NYSE A/D net issues ($NYAD), tomorrow 4/30 may be a profit-taking day. Long Setups to Consider $NDX $RUT have formed the 4th thrust on their 5-minute charts today. While this thrust may rise a bit higher, it is no longer a low-risk high reward setup to enter long here. If you want to capture part of the rise up, the better setup to enter is when $NDX $RUT $SPX all pull back to the 200 EMA line, or at least below the 50 EMA, on their respective 5-minute charts. They also need to form a Knot Pattern here, and not just fall straight through. If you enter at a Knot Pattern at this support level, you can place a stop just below and test the potential rise. The potential rise is the 5th thrust for $NDX $RUT and 4th thrust for $SPX. If they find support at the Knot, they can rise up to the new Resistance2 level. Updates 2:17 PM Wednesday 4/29/20 The big news that moved the market this morning seems to be Gilead. So far the FOMC announcement seems to have produced just a big "meh" response. Here is the updated S/R levels. Updates 11:08 AM Wednesday 4/29/20 The Gilead positive news produced an overnight gap up and caused our TZA position to get stopped. This is painful of course. It's a good thing that we only scaled in one small position. We will post the table of trades soon. $SPX $NDX $RUT gapped up, but not in a huge way. There's some follow-through buying, but again not in a huge way. With this gap up, $NDX $RUT are now forming the 4th thrust on their 5-min charts, and $SPX is forming the 3rd thrust on its 5-minute chart. These are the thrusts formed within Bounce3 (started on 4/21). So there's still a bit more room for $SPX $NDX $RUT to rise up within Bounce3. All depends on whether or not market participants like what they hear from the Fed at 2 PM EST today. Updates 2:50 AM Wednesday 4/29/20 We didn't have time to explain the full context of our intraday trades today. A number of our members were interested in seeing how the patterns such as Knot or V/W reversals can be used to trade on short-term basis. Tuesday 4/28 seemed like a good day to show this concept. Alas the swings came fast and furious, as it was a whipsaw day. We will go back and annotate the trades with charts to show how the signals were triggered. But for now, let us focus on data that may be relevant for Wednesday 4/29. The big event is FOMC announcement at 2 PM EST. We have updated the S/R table below. On 4/21, Bounce3 started for $SPX $NDX $RUT. There are enough data points now for us to examine their 5-minute chart trends. As you can see, IWM shows that 3 thrusts has formed since 4/21. Same with $NDX and $SPX. Recall that these rising or falling segments usually have anywhere from 3 to 5 thrusts. FOMC event may give us the 4th thrust and may bring about the end of Bounce3. In any event, it is prudent to take partial profit at the 4th thrust and tighten the stops on your long positions. We are not saying Dive2 is arriving necessarily. We may not even get any large pullback. But after the 4th or possibly 5th thrust, price will most likely swing below the 200 EMA on the 5-minute chart, like it did on 4/21 and 4/1. So you may want to think about protecting yourself from this down swing. 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 up 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. Proshares UltraPro and UltraPro Short ETFs Direxion Leveraged and Inverse ETFs Why 3x ETFs like TQQQ lose money over the long term The risks of investing in inverse ETFs Simple explanations of contango and backwardation Updates 3:57 PM Tuesday 4/28/20
Updates 2:07 PM Tuesday 4/28/20 The Knot Pattern shown below is playing out well. Manually added Quick2.
Updates 1:54 PM Tuesday 4/28/20 The Knot Pattern shown below is playing out well.
This trade most likely will span into tomorrow Wednesday. Updates 1:30 PM Tuesday 4/28/20 Just want to alert you to a Knot pattern forming on $NDX QQQ TQQQ 5-minute chart. This is bullish pattern. Could re-test high of today. Updates 12:57 PM Tuesday 4/28/20 Exited TZA Quick1 position at 35.18. We did not like the way the pattern is evolving. Detailed explanations coming up soon. Updates 12:21 PM Tuesday 4/28/20 TZA turned back up again.
Updates 12:06 PM Tuesday 4/28/20 Our Quick TZA position got stopped out for a small gain. We'll post a more detailed trade analysis later today. For now, we are eyeing re-entry near 34.5. Updates 11:08 AM Tuesday 4/28/20 Apologies for the constant updates, but this is a fast moving market, and this is likely to be an intraday trade.
Fast moving market!
Updates 10:35 AM Tuesday 4/28/20 Price is moving up for TZA. So we went ahead and entered a small position at 34.65. Changed previous order to:
Updates 10:13 AM Tuesday 4/28/20
Updates 1:40 AM Tuesday 4/28/20 Trade Setups with $RUT IWM $RUT IWM gapped up and spent the rest of the day marching upward until near closing time. While $RUT IWM may appear to be breaking out, bulls should approach this rise with caution. We will start labeling this up segment "Bounce3", which started on 4/21. However, we still view this as a bear market rally within a Down Trend. While we could be wrong, we are in the camp that says this is not the start of a new Up Trend. Nevertheless, there are definitely opportunities here to trade long based on $RUT. We just have to wait for a low-risk high-reward entry before entering. IWM 30-minute chart below shows the 2 low-risk setups to look for. There are 2 possible entry points.
Knot Pattern on IWM 5-minute chart: This is the weaker setup, but still mildly bullish. On IWM 5-minute chart, we must see IWM and its 20 and 50 EMA all anchor themselves around the 200 EMA. That would be the bullish Knot Pattern. On IWM 30-minute chart, we should also see IWM appearing to anchor itself at about the 50 EMA.
Knot Pattern on IWM 30-minute chart: This is the stronger more bullish setup. On IWM 30-minute chart, we must see IWM and its 20 and 50 EMA all anchor themselves around the 200 EMA. That would be the very bullish Knot Pattern, because it occurs at a key EMA level on a bigger time frame.
Is it time to short yet? Given the bullishness of $RUT IWM right now, we want to stay cautious and not try to get in the way of the bulls yet. Certainly not before FOMC on 4/29. While we will be monitoring for $SPX $NDX $RUT to drop down from their Monday closing price, and form some kind of a Knot Pattern, we are not planning to enter the "reverse to mean" trade based on Multi-Top Pattern. Not yet anyway. 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 up 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. Proshares UltraPro and UltraPro Short ETFs Direxion Leveraged and Inverse ETFs Why 3x ETFs like TQQQ lose money over the long term The risks of investing in inverse ETFs Simple explanations of contango and backwardation Updates 10:55 AM Monday 4/27/20 If $SPX $NDX $RUT are starting a new up segment (Bounce3), there will be low-risk setups to enter. The setups will be either when prices pull back to wind around support at the 200 EMA on the 5-minute chart (Knot pattern), or when they swing below the 200 EMA to form a V/W reversal. Stay disciplined and wait for the low-risk high-reward setups. Otherwise, you can incur a series of losses if you try to jump in on any other signals. Updates 9:58 AM Monday 4/27/20 $SPX $NDX $RUT gapped up at open. In range-bound market, this gap up potentially leads to a Multi-top formation. So:
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 up 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. Proshares UltraPro and UltraPro Short ETFs Direxion Leveraged and Inverse ETFs Why 3x ETFs like TQQQ lose money over the long term The risks of investing in inverse ETFs Simple explanations of contango and backwardation Updated at 3:50 PM EST - Sunday 4/26/20 Make Money Trading (Even When You Guessed Wrong) "I don’t think you can consistently be a winning trader if you’re banking on being right more than 50% of the time. You have to figure out how to make money being right only 20 to 30% of the time." —Bill Lipschutz No trading system is perfect, and no one is a perfect trader. The purpose of trading is to make money, not to prove that you are right. So the key is to find ways to make money, or at least not lose money, even when you may turn out to be wrong. Let’s take a look at our most recent trades and use them for possible lessons. So here are some key approaches to consider.
The key here is to choose a low-risk, high-reward setup and test it with a small position. If you are wrong, your risk is low and your loss is small. If you are right, your reward can be much higher. Do this enough times and you have a decent net gain. Be A Winner By Learning How To Lose "You have to learn how to lose; it is more important than learning how to win." —Mark Weinstein Loss aversion is a huge problem for new traders. We have all been taught to be perfectionists in schools and at work. But aiming to have a perfect trading record will destroy your trading record in the long run. This is because the perfectionist mindset leads to loss aversion. And the loss avoidance mindset leads traders to freeze and let the losing trade spin out of control. Loss aversion also leads traders to freeze and not jump in when there is a low-risk, high-reward setup happening. They are either licking the wound of the previous loss, or holding a position in the wrong direction and are unwilling to take a loss and pivot. The perfect trading record is actually one that features small losses and big wins. Overtime, you'll net a lot of money this way. Most of us traders spend a lot of time searching for the holy grail of trading systems. We want something that will give us perfect signals every time. There is no such thing. Just ask any famous traders. Instead, what works is a set of rules that you follow strictly. If you are striving for perfection, then strive to be perfect in following the rules of your trading system, and the rules of position management. That sound so boring! Yes, but it will make you money in the long run. Finding Low-risk High Reward Setups with Key EMA Patterns OK so we said find the low-risk high-reward setups to test a trade. But how? Think of price as a rubber band which gets stretched out and pulled away from the mean. On the 5-minute chart, the 200 green EMA line is the important mean. When price gets pulled out too far from the mean, the rubber band becomes overstretched. It will snap back to the green 200 EMA line. This is otherwise known as "reversal to mean" trade. Conversely, when price spends enough time around the 200 EMA line, it anchors itself to this line as support. This is the equivalent of tying the rubber band to support before pulling on it to stretch it out. You don't frequently read about this setup, but it's an important one. We call it "anchoring at mean" trade. The 5-minute chart below shows some important low-risk high-reward setups that you will encounter over and over again, on charts of any time frame. To see these patterns, turn on the 200 and 50 and 20 EMA lines for all your charts. Learn to view price patterns with these lines to provide more in-depth information. Here are the important EMA patterns to look for on any time frame. Knot: This is an "anchor at mean" pattern. The key in this pattern is to wait for the blue 20 EMA and red 50 EMA lines to converge at the 200 EMA line, and for price to contract into small candles anchoring right at the convergence. This is price proving that it has found support at the 200 EMA line. It's a low-risk setup to test for price rising up from this support.
V Reversal: This is a "reversal to mean" pattern. The key here is to monitor the blue 20 EMA and red 50 EMA lines as they get pulled far below the 200 EMA green line. Observe that price candles are forming below the blue 20 EMA line. This means that the rubber band is being pulled very far away from mean. At some point it will snap back.
Multi-top: This is a "reversal to mean" pattern. This is a popular and familiar pattern. But you can use the EMA lines for extra clues. Monitor the blue 20 EMA and red 50 EMA lines as they get pulled far above the 200 EMA green line. Observe that price candles are forming above the blue 20 EMA line. This means that the rubber band is being pulled very far away from mean. At some point it will snap back.
The Big Picture You may be wondering why bother tracking the big picture, the medium-term picture, etc. when you can just focus on trading the above chart patterns. We hope to show you as time progresses and as market direction changes, we have to use slightly different parameters to evaluate the EMA patterns. For now, focus on the above patterns as they have been shown for the context of a range-bound market. Last week, we showed you how $SPX monthly chart is the one to watch for indication of where and when $SPX may be heading. Here is $SPX monthly chart updated. We wrote last week: So the message from $SPX monthly chart for now is this. Expect sideway range trade for a few more weeks while $SPX bounces between <the 20 and 50-month EMAs>. As projected, sideway trade is what we got from $SPX $NDX $RUT this week. How much longer will this go on? Take a careful look at $SPX monthly chart above. In particular, pay attention to May 2001 and May 2008. These 2 candles look very similar to each other. They are both small topping spires that touched or penetrated the blue 20-month EMA line. We may experience something like this again. This means that there most likely won't be any huge directional price movements for May 2020. So while we stay flexible and monitor for a breakdown or breakout with $SPX $NDX $RUT, we also are planning for the possibility of this range-bound market continuing through most of May. Volatililty, Market Breadth and Junk Bonds The message from volatility charts makes us suspicious. $VIX $VXN both dropped sharply on Friday afternoon 4/24. Too sharply. We typically see this kind of setup followed by a gap down and then a sharp rise in volatility. So while we are not betting on this unfolding just yet, we will continue to monitor for this possibility. A sudden sharp rise in $VIX $VXN will lead to a sharp drop for $SPX $NDX $RUT. Market breadth ($NYAD $NAAD) is still diverging bearishly from $SPX $NDX $RUT since reaching a short-term high on 4/9. This does not bode well for the long-term bullishness in $SPX $NDX $RUT. Still the bearish divergence can go on for a while. But the most interesting chart to look at is JNK shown below. This is a popular ETF for junk bonds. Observe how it rose sharply starting on 4/6, when rumors of the Fed buying junk bonds started to float around. JNK gapped up big on 4/9 when the Fed made their announcement. But since then, JNK has been dropping. Lots of traders are still waiting for FOMC announcement this Wednesday 4/29. Maybe the Fed will bring out an even bigger bazooka. But that still begs the question, why aren’t traders buying more junk bonds if the Fed is buying them? Junk bonds is a reliable leading indicator for stock market direction. And the lack of buyers in JNK, despite the huge support from the Fed, should be worrisome for stock market bulls. Make Money Trading This Week (Even With Incomplete Information) As you can see, right now we have mixed messages from market internals and certain leading indicators. Our big picture projection opens us up to the possibility of a whole month of range-bound market. Trying to project the next directional move in this market is futile. Instead, we should focus on making money trading reliable EMA patterns for very short-term moves. We should focus on risk management, capital preservation, and staying patient while learning and practicing. Focus on:
Keep in mind, some of these moves will last just one day, some will span overnight. If you are concerned about Pattern Day Trader rule, then trade no more than 3 times per week. Wait for really big and obvious setups before you test. Alternatively, try paper trading. Keep meticulous records while you practice your trade techniques and capture your own analysis for future reference. Screen capture lots of charts, and annotate them. Learn from your success and your failures. There is no other way to become a successful and confident trader. $SPX $NDX $RUT Please review the 5-minute chart we posted above to illustrate EMA trade patterns. That is the latest IWM 5-minute chart. This chart shows IWM forming another multi-top on Friday 4/24. Additionally, review $SPX and $NDX 5-minute charts below. Setups to test on $SPX $NDX $RUT 5-minute charts
Support & Resistance Levels Most of the levels are still the same except for the resistance levels of $RUT IWM TNA. 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 up 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. Proshares UltraPro and UltraPro Short ETFs Direxion Leveraged and Inverse ETFs Why 3x ETFs like TQQQ lose money over the long term The risks of investing in inverse ETFs Simple explanations of contango and backwardation Updates 12:57 PM EST - Friday 4/24/20 Our Core TZA got stopped out from the trailing stop set earlier (see 11:16 AM post). We are 100% in cash now. Overall, we are pleased with the fact that despite having to endure a whipsaw market, we managed to exit with a gain on both positions. Curent observations:
This back-and-forth seesawing will frustrate lots of traders. These are the times when your trading account will grind down to a loss, giving back all the big gains you may have had. But this is the nature of the market at indecision time, and this is the nature of trading. There are 3 kinds of market: bullish, bearish, and undecided. The truth is stocks spend a major chunk of time in "undecided". Recognize and respect this market by doing one of 2 things:
Updates 11:16 AM EST - Friday 4/24/20 $RUT IWM ES NQ RTY are the leading patterns right now with the clearest movements. They continue to form topping patterns with short-term lower highs. This combined with the drop in market breadth, and the W pattern of $VIX, leads us to think that the next major move is likely to be bearish. Still there is a lot of whipsaw. The bulls won't give up until at least after FOMC announcement on 4/29. We don't recommend that you initiate long or short swing positions that you intend to hold over the weekend. However there are lots of opportunities to do intraday trades. We have removed the sell limit order and have switched to a manual trailing stop for our Core TZA position. The general exit area will be 46 to 48. Updates 10:52 AM EST - Friday 4/24/20 There was more buying overnight on light volumes. This drove up $SPX $NDX $RUT prices a bit, resulting in a small gap up. But prices are heading down again. This kind of back and forth small swings in a range trade can drive traders crazy. There is no trend to speak of up or down. Only oscillating moves. You have to be be nimble with your entries, and aggressively take your profit, as you saw with our Quick TZA yesterday. With that in mind, we have moved down the exit target for our Core TZA position, and move up the stop price. Updates 11:00 PM EST - Thursday 4/23/20 (for Friday) Anatomy of a trade Thursday morning sudden bullish rise in $RUT IWM caused our 2 TZA positions to get stopped out at breakeven.
$SPX Let's zoom out the 30-minute chart level so we can see the bigger picture pattern for projection. As shown below, $SPX may continue the current range trade between Resistance2 and Support1 into next week. $NDX As shown below on the 30-minute chart, $NDX may continue the current range trade into next week as well. $RUT IWM IWM chart acquired some new data points Thursday 4/23, and now we have a couple of classic pennants showing up. The 1st pennant formed between 3/26 and 3/31, followed by a bearish breakdown where IWM gapped down below the pennant. Now we have a 2nd pennant that formed between 4/14 and 4/23 as shown on IWM 30-minute chart below. So here are the patterns we are monitoring for.
Based on the additional warnings from rising $VIX $VXN and declining market breadth, we think the odds favor a bearish breakdown. But don't discount the potential bullish break above yet. For this reason, if IWM closes Friday above the bottom edge of the pennant, we will manually exit the remaining Core TZA and stay in cash. 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 up 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. Proshares UltraPro and UltraPro Short ETFs Direxion Leveraged and Inverse ETFs Why 3x ETFs like TQQQ lose money over the long term The risks of investing in inverse ETFs Simple explanations of contango and backwardation Updates 4:49 PM EST - Thursday 4/23/20 $RUT IWM TZA Our Quick TZA position got filled at 44.3 after hours. Now that we have booked partial profit, we can let the Core TZA position run longer. Updates 3:28 PM EST - Thursday 4/23/20 $SPX $NDX Today was whipsaw day. Since the weekend analysis, we've been warning with you that $SPX $NDX can still surge up to retest the highs of 4/16- 4/17. This is what happened. Both $SPX $NDX failed to surpass the highs and they are now marching downward. However, they are not ready to roll over yet. On their 5-minute charts, $SPX $NDX are likely to keep swing back and forth across the 200 EMA line. For those of you who are nimble day traders, this represents interesting opportunities. But if you are doing multi-day swing trades, you will be very frustrated as your positions will most likely get stopped out. We personally are monitoring $SPX $NDX but not entering any positions long or short with regard to these 2 indices. $RUT IWM TZA Please see our updates earlier today regarding our TZA positions. We have now moved the stops to break even, and plan on booking profits sooner because the swings are still too volatile to hold on for a longer ride. We want to take some profits from the market with our Quick TZA position. This will give us cash to take home while we let the Core TZA position run a bit longer. Even so, notice that we are not letting Core TZA go very far. Updates 1:26 PM EST - Thursday 4/23/20 $RUT IWM TZA Per our updated stops at 11:34 AM, we did not get stopped out.
Updates 11:34 AM EST - Thursday 4/23/20 $RUT IWM TZA Updated stops for our TZA position. Updates 11:24 AM EST - Thursday 4/23/20 $SPX $NDX We've been warning you that $SPX $NDX may still attempt to retest their mid April highs. And they are still trying to do that. This is why we wrote that we were not entering into any short positions against $SPX $NDX. But we also don't believe in blindly following the Fed and assume they can paper over all manner of sin. Hence we have no long positions based on $SPX $NDX either. $RUT IWM Here are our positions updated. It seems we do need to get out of our Quick position more quickly as $RUT IWM are still range bound. Updates 11:00 AM EST - Thursday 4/23/20 Yesterday we wrote that if $SPX $NDX push above the 200 EMA on their 5-minute charts, the bears will be very frustrated, and there will be a fresh crop of bulls chanting "nothing can keep this market down". It certainly appears to be that way right now. It also feels very much like the setups we saw back in mid February. Our TZA positions got stopped out at breakeven. We just scaled back into TZA at 41.62. Updates 11:10 PM EST - Wednesday 4/22/20 (for Thursday) Volatility Since 4/14, $VIX has been forming a series of rising W. This is a warning that $VIX is likely to rise a lot more, which means $SPX is likely to drop a lot more. $RUT IWM Also since 4/14, small caps have been forming a series of topping spires. These spires are also descending. They are warnings that $RUT IWM are forming topping patterns, and are likely to drop substantially in the medium term. However, in the short term, $RUT IWM may still continue this pattern of attempting to rise up, test resistance, then drop a bit. The downward coiling will build up bearish energy for a big drop eventually. But in the short term, bears may be frustrated trying to time $RUT IWM movements. $NDX $SPX If $NDX and $SPX rise back up above the green 200 EMA line to retest the highs at Resistance2, a lot of bears will become frustrated and give up. At the same time, new and eager bulls will enter, setting the stage for a big bull trap potentially. As we mentioned previously, the line in the sand is $SPX 20-month EMA, which has been downward, and currently sits at 2875. Support & Resistance Levels The short-term S/R levels have not really changed since 4/22. Model Portfolio Our positions have not changed. 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 up 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. Proshares UltraPro and UltraPro Short ETFs Direxion Leveraged and Inverse ETFs Why 3x ETFs like TQQQ lose money over the long term The risks of investing in inverse ETFs Simple explanations of contango and backwardation Updates 12:04 PM EST - Wednesday 4/22/20 Stay patient and stay flexible while $SPX $NDX $RUT undergo the battle between the bulls and the bears. Congress passed more stimulus today, but again we have a quick gap up and the meh response. Meanwhile, oil futures can still go negative again. The reason for the negative price in the first place is clearly explained here. The collapse of demand for oil is an extreme example of the collapse of demand for commodity, goods and services. More collapses will follow. No matter how much the bulls want to follow the Fed, eventually the collapse of demand and the continued slides in earnings will come into play in the prices of $SPX $NDX $RUT. For now though, buyers are going to push $SPX up to try to surpass the huge resistance at the 20-month EMA (about 2880). Sellers are lining up on the other side of that line in the sand. What this means is that $SPX $NDX $RUT may still try to go back and retest the highs from 4/14 to 4/17. They most likely will encounter selling pressure. What this also means for the 5-minute chart patterns is that we may no longer have the drop (down segment). We may see the formation of gently rolling sideway 200 EMA line. And we'll be looking to see if that 200 EMA line forms a head & shoulder pattern, or a W pattern instead. Stay patient and flexible. Updates 10:32 AM EST - Wednesday 4/22/20 Chart Lesson As we write this, $SPX and $NDX are unfolding according to the 5-minute charts we posted at 1:10 AM EST today Wednesday 4/22/20. So there’s a chance that $SPX $NDX may follow the paths we outlined. A member asked us to explain more about the pullback to test the EMAs on the 5-minute chart. First of all, these thrust counts are not precision counts. Think of them as guideposts to help us determine how much longer a particular up segment or down segment will last. A segment spans the directional move of the 200 EMA line on the 5 minute chart. The last major segment we had was Bounce2 from 4/3 until 4/17 for $SPX $NDX, and 4/3 to 4/14 for $RUT. Even when we don't have a major segment moves, we can still use the counts to guide the minor segment moves. Price functions like a rubberband being stretched. After being pulled far away from anchor at the 50 and/or 200 EMA, it will snap back to anchor, at the 50 and/or 200 EMA. The key to ask yourself is this. How many times has price been pulled strongly away from the 50 EMA? Each of those big pulls basically counts as a thrust. In a strong trend, we may get up to 5 big thrusts per segment. In choppy market, we may only get 3 thrusts per segment. These are rough guidelines. By our definition, when price snaps back and retests either the red 50-EMA line or the green 200 EMA line, the stretch that precedes the snapback counts as a thrust. Let us illustrate. Updates 9:40 AM EST - Wednesday 4/22/20 We've updated our stops so that both our Core and Quick positions have breakeven exits. This is how we personally like to protect our positions at the start of a new segment. As $RUT IWM drop further, we will trail our stops down. Updates 1:10 AM EST - Wednesday 4/22/20 $SPX $NDX $RUT The 5-minute charts below how that $SPX $NDX $RUT most likely have formed their first downward thrust today. Given the current choppy conditions, we think they may only go through 3 downward thrusts before they try to rise back up in a big way. To make it clearer, we have drawn the possible paths that $SPX $NDX $RUT may follow over the next few days. Keep in mind these are simply projections, not any kind of guarantee. Still you may find it's helpful to visualize one possible scenario, and then layer on additional scenarios from your own projections. Model Portfolio We find it helpful to list the approximate sell price for our own thinking. However, please note that the Sell Prices listed below are projections. We make the final sell decision based on the appearance of the chart patterns, along with other confirmations such as volatility and market breadth. 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 up 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. Proshares UltraPro and UltraPro Short ETFs Direxion Leveraged and Inverse ETFs Why 3x ETFs like TQQQ lose money over the long term The risks of investing in inverse ETFs Simple explanations of contango and backwardation Updates 1:15 PM EST - Tuesday 4/21/20 $SPX $NDX $RUT
Stock market mood is still overall bearish, highly rattled by what's happening in oil market. However, as $SPX and $RUT approach Support2, they are likely to stage an upward reversal. ("Likely" is not the same as "guaranteed".)
Our plan is to continue holding our 2 TZA positions. We don't plan to take partial profit until the 2nd downward thrust is done forming. Updates 10:16 AM EST - Tuesday 4/21/20 Volatility and Market Breadth
These are both continued confirmations that the mood has turned bearish. The stage was set up last week as we discussed in our daily updates and the weekend analysis. The oil market collapse Monday 4/20/20 was the catalyst that spurred the selling. The oil market will continue to roil other markets. $SPX $NDX
$RUT
Updates 11:05 PM EST - Monday 4/20/20 (for Tuesday) Oil The oil market will likely end up roiling other markets. We have no expertise in oil, but the following synopsis by Mohamed El-Erian summarizes the current situation pretty well. A historic day of trading thanks to oil. It’s hard for risk markets to ignore the dislocation, and understandably so. While nowhere as extreme as the expiring contract, the price move down in the energy complex raises direct and indirect risks for other market segments. Despite worsening supply fundamentals, buyers responded to the decline in the oil ETF by pouring money in, setting up for historic debacle ahead of the contract roll. Beyond wild price moves, what happens when imbalances in physical/financial oil markets feed on themselves? Higher risks of:
Volatility In our weekend analysis, we wrote: By Friday 4/17, $VIX has formed a W pattern very near the bottom of the ghost print. (The ghost print was the one-second drop from 55 down to 36 and back up to 55 on 3/24). This is a short-term bottoming process, where $VIX is anchoring to support and getting ready to rise. This is a bearish warning from $VIX, and it is confirmed by $VXN. Recall we discussed the very tall spires that $VIX needs to form on its monthly chart. You can re-read it here. $VIX formed its Spire1 in March. Now it needs to form Spire2. This means that $VIX will rise up a substantial amount, possibly to retest the zone between 59 and 69. It may even rise as high as 75. When $VIX $VXN rise this high, $SPX $NDX $RUT are likely to have a dramatic drop. $RUT IWM Small caps continue to act weaker than $SPX, and much weaker than $NDX. IWM 30-minute chart below shows the formation of a series of descending spires (red arrows). These are very similar to the ones formed between 3/26 and 3/31, right before the last drop. The topping spires signal that $RUT IWM are likely to drop down some distance from here. But we are not convinced that $RUT IWM will have a dramatic drop right away. $RUT IWM will very likely test Support2 to start. Then they may still go back up, frustrating both the bulls and the bears. And then when traders become totally frustrated and ready to throw in the towel, $RUT IWM will most likely drop a good distance. Support & Resistance Levels Below is the S/R table from Friday 4/17. Prices have been stuck in a narrow range, not yet breaking out, up or down. Our trading plan
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 up 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. Proshares UltraPro and UltraPro Short ETFs Direxion Leveraged and Inverse ETFs Why 3x ETFs like TQQQ lose money over the long term The risks of investing in inverse ETFs Simple explanations of contango and backwardation |
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