See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 10:30 AM EST - Wednesday 7/1/20 Short Term We just want to clarify that the LRHR bullish setup described below is just a suggestion to help you identify the dip to buy long. We are not saying that you cannot enter long at other prices. You may just end up with some drawdown before Bounce8 rises up some more. As of right now, IWM has formed a clear top, $SPX has formed a vague top, and $NDX is still marching bullishly into the orange zone. So clearly the indices are not behaving with the same level of bullish enthusiasm. The orange zone is short-term resistance. It is NOT where Bounce8 will end necessarily. Bounce8 may end up exceeding the orange zone. At least that may be the case for $NDX. Updates 9:32 AM EST - Wednesday 7/1/20 Short Term $VIX just formed a signal indicating it plans to rise up some amount. $VIX should not exceed 31.8 when it's time to enter long. So here's the revised setup. LRHR bullish setup to enter long and capture the remainder of Bounce8. (We need to all of these conditions.)
Updates 9:21 AM EST - Wednesday 7/1/20 Short Term Positive vaccine trial results from Pfizer and BioNTech spike prices up pre-market. Prior to that, $SPX $NDX IWM had been drifting down. There is likely some amount of profit taking that may take place at the start of today, based on the "buy the rumors, sell the news" pattern that has been happening in the last few months. Yesterday was "buy the rumors." Today is likely "sell the news", or at least "take profit on the news". So we still recommend waiting for the setup below before entering long. Keep in mind that the minor selling that may take place is not the end of Bounce8. It is simply $SPX $NDX IWM snapping back to minor support before launching Thrust3 of Bounce8. So here is the LRHR bullish setup to enter long and capture the remainder of Bounce8. (We need to see both of these conditions.)
Updates 1:40 AM EST - Wednesday 7/1/20 Short Term Below is the updated S/R table showing the orange resistance zone, green shallow support zone, and blue deep support zone. $SPX $NDX IWM have demonstrated since Monday 6/29 that they are intending to rise. This is most likely the formation of Bounce8. $SPX $NDX IWM 5-minute charts below show that the indices have formed Thrust2 of Bounce8 by end of day Tuesday. Based on the flat actions so far in futures as of this writing, there is a good chance that $SPX $NDX IWM will snap back to shallow support at the green zone on Wednesday. Observe that the green zone is between the red 50 EMA and green 200 EMA line, on the 5-minute chart of each index. By definition, after each thrust forms, price has to snap back to support either at the 50 EMA or 200 EMA on the 5-minute chart to complete the formation of the thrust. If $SPX $NDX IWM find support in the green zone, then they will start forming Thrust3 of Bounce8 next. So here is the LRHR bullish setup to enter long and capture the remainder of Bounce8. (We need to see both of these conditions.)
If $SPX $NDX IWM fail to find support in the green zone, then they will most likely drop down to the blue deeper support zone. If $SPX $NDX IWM find support there, Bounce8 can still resume. If $SPX $NDX IWM drop through the blue zone, then the situation has turned quite bearish. Dive 2 is probably starting. 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
11 Comments
See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 12:44 PM EST - Tuesday 6/30/20 Short Term What a morning! In its pre-market signal this morning, $VIX raised the possibility of bearish moods for $SPX $NDX IWM. But when $VIX dropped below 31.3, it became a failed signal, which means $SPX $NDX IWM are bullish. We've shared with you $SPX $NDX IWM 5-minute charts and the snapback zones. The LRHR setup here is to enter long when $SPX $NDX IWM find support in these snapback zones. Updates 12:20 PM EST - Tuesday 6/30/20 Short Term Here are $NDX and IWM 5-minute charts. The up swing from this morning visible on these 5-minute charts is most likely the formations of Thrust1. Thrust1 may still rise a tad higher. However, once it is done forming, we should expect to see a quick snapback to minor support. Here are the minor support zones for the snapback.
Monitor these zones to see if $SPX $NDX IWM find support here. If they do, they are likely to rise higher to form Thrust2. Updates 11:41 AM EST - Tuesday 6/30/20 Short Term Let's step back and look more carefully at the pattern that's unfolding. Here is $SPX 5-minute chart. It looks like $SPX is most likely starting Bounce8. The up swing this morning visible on this 5-minute chart is most likely Thrust1. From here we should expect to see a quick snapback to minor support in the zone between 3048 and 3060. If $SPX finds support in this zone, it will rise up to form Thrust2 of Bounce8. Updates 10:59 AM EST - Tuesday 6/30/20 Short Term We said: "Manually exit short positions if $VIX drops below 31.3."
Updates 9:59 AM EST - Tuesday 6/30/20 Short Term So far the bearish setup as (described last night and confirmed at 9:16AM today) unfolded as expected.
Updates 9:16 AM EST - Tuesday 6/30/20 Short Term This is the setup we are seeing this morning LRHR short-term bearish setup for Tuesday 6/30 at open
This is an LRHR setup to exit long and enter short. This will be a quick trade, until $VIX tags the top edge of its pennant again. Since it is a quick trade ahead of the holiday weekend, trade small, use tight stops and take profit quickly. Updates 12:15 AM EST - Tuesday 6/30/20 Short Term Today continues the choppy range trade market that we described in our weekend analysis. We showed you $VIX hourly chart projected to go sideway, and this is pretty much what happened on Monday. At 9:45 AM EST on Monday 6/29, $VIX tagged the upper edge of its pennant, formed topping spire on its 5-minute chart. At this signal $SPX $NDX IWM turned bullish for the day, as anticipated. AT closing, $VIX tagged the lower edge of its pennant, but showed no sign of forming a bottom yet. Two things can happen here.
We know we said in the weekend analysis that Bounce8 so far has failed to arrive. However, today's actions by $VIX indicates Bounce8 may arrive after all if $VIX drops below its pennant. As traders we have to trade what the market is telling us, and the message from the market evolves each day. Our job now is to wait until pre-market tomorrow and look for the following setups: LRHR short-term bearish setup for Tuesday 6/30 at open
This is an LRHR setup to exit long and enter short. This will be a quick trade, until $VIX tags the top edge of its pennant again. LRHR short-term bullish setup for Tuesday 6/30 at open
This setup indicates $VIX is likely to drop, and may drop below its pennant, possibly launching Bounce8 for $SPX $NDX IWM. This is an LRHR setup to exit short and enter long. We will be tracking these setups and post about them before open on Tuesday. Please note that they are setups based on current actions from $SPX $NDX IWM $VIX $VXN, among other indicators. The setups will change as these actions change. Here is the updated S/R table. And before we leave, we want to share with you this IWM 2-hour chart, showing why Bounce8 is still possible at this point. Recall we said $RUT IWM (small caps) is actually the most sensitive index when it comes to being bullish or bearish. IWM is the canary in the coal mine. Here are the reasons why we think IWM is showing us that Bounce8 is possible.
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 See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 11:00 AM EST - Monday 6/29/20 Short Term To help you trade this very choppy market today, construct the following pennant for your own $VIX chart and follow the edges as shown. Please note that the reversals are expected as long as $VIX stays within the boundaries of the pennant. If $VIX spills out of these boundaries, these reversal conditions are no longer applicable. Updates 10:27 AM EST - Monday 6/29/20 Short Term So we got the bullish reversal for $SPX $NDX $RUT when $VIX hit 36.3 this morning. This is fairly close to our projection of 36.5 at 9:27 AM. Now we are looking for the bearish reversal for $SPX $NDX $RUT when $VIX hits 31.8 today. Remember that none of these trades are going to be big. No Bounce8. No Dive2. Just very choppy swings. Great for day traders. Tough on everyone else. Updates 9:27 AM EST - Monday 6/29/20 Short Term In the weekend analysis, we described the bullish and bearish setups that we are looking for this morning. We are not seeing either of those short-term setups at open. There is no signal from $VIX to initiate a new entry long or short at open. For intraday actions, we are looking for the following setups. LRHR short-term bullish setup for Monday 6/29 intraday
Note that this is a bullish setup to capture a short-term up swing between $SPX $NDX IWM green and orange zones. This is not the start of Bounce8. Bounce8 has failed to materialize since 6/10, and is unlikely to show up as the bear market rally goes sideway. LRHR short-term bearish setup for Monday 6/29 intraday
Note that this is a bearish setup to capture a short-term down swing between $SPX $NDX IWM green and orange zones. This is not the start of Dive2. We are emphasizing this because we don't think it's a good idea to enter a short position here and expect to hold it for the next few weeks. You will most likely lose money doing that while the market goes sideway. 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 4:55 PM EST - Sunday 6/28/20 We would like to welcome all new subscribers. Please read our FAQ for more explanations on terms, labels and abbreviations that we use. Long-term portfolio and medium term trades Our latest analysis of market conditions reveals a lot of bearish signals. This does not bode well for long-term equity portfolio, or medium-term long positions. However, Dive2 is not necessarily taking off this coming week, or even in July. Instead the transition to Dive2 may be a choppy market that frustrates both bulls and bears. We project that Dive2 will arrive in a big way after the next FOMC announcement on 7/29. August is the worst month for the Dow and S&P since 1987, according to the Stock Trader’s Almanac. Let's examine the signals in more detail. Signals from the Fed The Fed has been sending out some big messages, yet retail investors and financial headlines so far have not zeroed in on these messages. Here they are:
Signals from market internals Volatility: See further below for expanded discussion. Market breadth: NYSE and Nasdaq A/D charts are all bearish currently. However, the most concerning chart is Nasdaq A/D cumulative chart ($NAAD on Stockcharts.com). It shows the same bearish divergence observed between Jan and Feb 2020, and between Aug and Oct 2018. The divergence is this. There were less net advancing Nasdaq stocks in Feb 2020 compared to Jan, even though $NDX rose to a new high between Jan and Feb. There are now even less net advancing Nasdaq stocks than back in Jan, even though $NDX rose to a new all-time high last week. At some point soon, prices will wake up to this bearish divergence and start to head down as well. Equity put/call ratio: This daily chart for this ratio (PCCE on TradingView.com) shows a W bottoming pattern, indicating it is likely to rise up substantially. When this ratio rises, it is bearish for stocks. Percentage of bullish stocks: Again we are observing the same bearish divergence here. $NDX has been forming higher highs since 6/10 while this index ($BPNDX on Stockcharts.com) has been forming lower highs. Signals from bond market TLT chart shows long term bonds are coiling to rise. Meanwhile junk bond ETFs (JNK HYG) have trending down since the start of Jun, despite buying from the Fed. Junk bonds tend to behave more like stocks because they tend to rise in risk-on environment. The message here is that big money is moving more into risk-off defensive mode, and poised to move out of equity. This could be due to mid-year portfolio rebalancing by pension and hedge funds. But it could also be due to big money sensing the arrival of Dive2. Signals from monthly charts $SPX monthly chart below shows a very bearish topping spire formed for the month of June. The last time we saw this monthly spire was Jan and Feb this year. $NDX $RUT are all forming similar bearish topping spires on their monthly charts. Signals from $VIX On Friday, we shared with you $VIX daily chart that showed $VIX coiling upward in a rising channel. Let's take a look at this upward coiling on $VIX hourly chart. If $VIX continues this upward coiling pattern, $VIX very likely will erupt into a big surge soon. However, we also have to examine the possibility of $VIX going sideway for at least another week before it breaks out or breaks down, as shown in $VIX hourly chart below. We think this possibility is actually the likeliest. This coming week of 6/29 is pre-holiday week. We don't expect major market actions to happen. Dive2 is unlikely to arrive this coming week. Labels matter During the bear market rally that started on 3/23, we used the term "Bounce" to denote the up swings clearly visible on $SPX $NDX IWM hourly charts. (New members: please see charts in this post for where the bounces are.) In between each bounce, $SPX $NDX IWM snapped back to major support, typically at the bottom of the rising channels. We believe $SPX $NDX IWM are entering into sideway range trading, at least for this coming week. We don't want to use the label "Bounce" for the up swings any more. This term implies the potential for a substantial bullish move that may last 7-10 days. We don't think that will be the case in the short term. So we'll just simply label them "up swing" and "down swing" for now. You may see $SPX $NDX IWM form these up/down swings fairly rapidly this coming week as they move sideway. Short-term trades Below is the updated short-term S/R table, showing the green support zones and the orange resistance zones. $SPX $NDX IWM are likely to traverse back and forth between these 2 zones during this coming week. LRHR short-term bullish setup for Monday 6/29
Note that this is a bullish setup to capture a short-term up swing between $SPX $NDX IWM green and orange zones. This is not the start of Bounce8. Bounce8 has failed to materialize since 6/10, and is unlikely to show up as the bear market rally goes sideway. LRHR short-term bearish setup for Monday 6/29
Note that this is a bearish setup to capture a short-term down swing between $SPX $NDX IWM green and orange zones. This is not the start of Dive2. We are emphasizing this because we don't think it's a good idea to enter a short position here and expect to hold it for the next few weeks. You will most likely lose money doing that while the market goes sideway. 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 See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 12:34 PM EST - Friday 6/26/20 Short and Medium Term Apologies! We have to update the green support zone for TZA with some new data. Dive2: LRHR setup to enter short against $RUT IWM
The weakest index is still $RUT (small caps). So it's best to short this index. Our preferred instrument is to enter TZA. And yes, if this bearish combination holds, this is the start of Dive2. Updates 12:20 PM EST - Friday 6/26/20 Here is the chart that should worry the bulls. It's $VIX daily chart showing $VIX rising up steadily in the yellow channel. Here are the things to look for as this channel move unfolds.
LRHR setup to enter short against $RUT IWM:
The weakest index is still $RUT (small caps). So it's best to short this index. Our preferred instrument is to enter TZA. NOTE: This TZA hourly chart has yellow bands indicating extended trading hour data. Updates 10:23 AM EST - Friday 6/26/20 We warned earlier today that Bounce8 is in trouble if:
We also warned do not enter short just yet. This statement is still true. We will post more analysis shortly about where $VIX $VXN are heading. The boss indicators $VIX $VXN are definitely in charge of the market today. Updates 9:29 AM EST - Friday 6/26/20 Here are the updated conditions that we are tracking, and updated entry/exit rules for today. Bullish: Bounce8 is intact if:
Bearish: Bounce8 is in trouble if:
When these bearish combinations are seen, it's a signal to exit long $RUT IWM. However do not enter short just yet. While this is a very choppy market, it is not yet ready to drop big. Furthermore, we need better setup for short entries. Recommended position management techniques in choppy markets:
Updates 12:25 AM EST - Friday 6/26/20 The S/R table below has not changed since Thursday. These zones are still relevant. For new members, please note that the orange zone is short-term resistance. Green zone is short-term support, while blue zone is deeper short-term support. Short term At 3:18 PM EST on Thursday, we wrote:
And indeed while $VIX was forming this bullish pattern, $SPX $NDX IWM all broke out above their green support zones where they've been for most of Wednesday and Thursday. We are going to label the current upward move "Bounce8". For $SPX $NDX IWM, Bounce8 has started from their green support zones on Thursday 6/25. So what's next? We explained on Thursday that while $VIX 200-hour EMA is going sideway, $VIX will oscillate back and forth across it. This means $VIX is likely to continue traversing the range between 30 and 37. Additionally, we wrote yesterday: Based on our experience, we have seen a lot of bearish divergence show up when $VIX $VXN oscillate around their 200-hour EMA. So we may see $NDX forming a higher high Bounce8, $SPX forming a sideway Bounce8, and IWM forming a lower high Bounce8. These are the exact same patterns that Bounce7 formed. Keep this scenario in mind as we track $VIX. Below is $VIX 30-minute chart. (We chose this time frame because you can see the patterns more easily.) Here are the conditions we need to track on this chart for Friday. Bounce8 is intact if:
Bounce8 is in trouble if:
If you are trading positions based on $SPX $NDX, this combination is the time to tighten stops on long positions. Do not bet against $SPX or $NDX. NOTE: While $SPX $NDX IWM are in moving in a sideway range, it is best to trade small positions with tight stops. 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 See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 3:18 PM EST - Thursday 6/25/20 We had to be out of the office today, but we are back.
So overall, $SPX $NDX IWM may rise back up, but they may not go far before volatility rises again. Keep this in mind as you plan your trade. Recall we wrote that trading oscillating $VIX is very hard. So trade small and use tight stop. Updates 10:31 AM EST - Thursday 6/25/20 Interpreting $VIX directional move is not easy. We personally rely on $VIX 5-minute chart a lot. The direction of $VIX 200 EMA on this chart is easier to track. Below is $VIX current 5-minute chart. It is moderately bullish for stocks if:
It is bearish for stocks if:
In the last 5 minutes of this writing, $VIX has just dropped below its 200 EMA on its 5-minute chart. This is early bullish signal. Wait for $VIX to swings back up one more time above its 200 EMA line and form a same-high or lower-high top. That's the LRHR setup to enter long $SPX $NDX IWM. Updates 1:55 AM EST - Thursday 6/25/20 Below is the updated S/R table showing the orange resistance zones, the green support zones, and the blue major support zones. Volatility tells the tale So as you know, we had been tracking the end of Bounce7 and the start of the sell-off that is a snapback to major support. On Tuesday, we wrote (at the wee hours of 12:26 AM) that we want to see $VIX gap down at open, and IWM remains stuck in its orange resistance zone. We got our wish at open on Tuesday. We alerted our members pre-market of this LRHR setup to enter short against $RUT IWM. Some of our members very nimbly did this and made out with a substantial gain of 14% entering TZA on Tuesday, and selling at the peak of volatility on Wednesday. So while we don't know for sure what truly triggered the sell-off, $VIX $VXN gave us the advance warning to enter short. So in this market environment, we must respect the fact that volatility is the leading indicator. For tonight, we are going to drill down into $VIX chart. Both $VIX and $VXN have been persistent in their messages. So we need to pay even more attention to them. Below is $VIX hourly chart. (This came from Trading View. The data spans from 3 AM EST to 4 PM EST every trading day so it doesn't show gaps.) Here are the conditions we need to track.
What this chart is telling us is that volatility is getting ready to rise, sooner or later. But until it rises seriously, we cannot jump in and assume that Dive2 is here. We have to work with $VIX $VXN oscillation patterns. In our experience, these oscillation patterns are hard to trade. Part of the problem is this. Based on our experience, we have seen a lot of bearish divergence show up when $VIX $VXN oscillate around their 200-hour EMA. So we may see $NDX forming a higher high Bounce8, $SPX forming a sideway Bounce8, and IWM forming a lower high Bounce8. These are the exact same patterns that Bounce7 formed. There is no easy way to predict this bearish divergence. But IWM has been the weakest index. So if IWM and $VIX $VXN agree on their messages, we should listen to them. So for Thursday, focus on $VIX $VXN and IWM hourly charts. 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 See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 12:08 PM EST - Wednesday 6/24/20 Short term Bounce8: Bounce8 can still be launched today if the following combination is true:
We are not recommending buying IWM TNA to capture Bounce8. We are using IWM as the gauge because it's the most bearish index. $NDX QQQ TQQQ are the preferred choices for capturing Bounce8. Dive2: Dive2 may take off for real today if the following combination is true:
Shorting $RUT IWM or entering TZA is probably the best way to capture Dive2. Whatever you do don't be tempted to buy TVIX. Updates 11:18 AM EST - Wednesday 6/24/20 Short term
No Bounce8 starting right now. Pay close attention to $VIX $VXN. Regardless of the support zones, as long as volatility is rising, there will be no Bounce8 happening just yet. The blue zone is the last line of defense for the bulls. If it doesn't hold for IWM, Dive2 scenario comes into play as we described last night. Updates 10:41 AM EST - Wednesday 6/24/20 Short term This morning at 9:23 AM we wrote: And monitor $VIX to make sure it doesn't rise above 33.5. This was the crucial updated requirement for Bounce8 to start this morning, along with bullish reversal by $NDX. Since $VIX broke 33.5 and shot up to close to 34.5, and is back to rising again, there is no confirmation that Bounce8 is starting in the green support zones yet. We are now monitoring for:
Note that IWM may drop down below the green zone. It has not been a candidate for capturing Bounce8. Updates 9:23 AM EST - Wednesday 6/24/20 Short term
Given that volatility is unlikely to rise higher today, monitor for $NDX $SPX IWM to find support in their green zones. $NDX is still the most bullish. Watch the zone between 10100 and 10130 for a possible launch of Bounce8 by $NDX. Even if you don't trade $NDX, monitor it for signals of bullish reversal starting. And monitor $VIX to make sure it doesn't rise above 33.5. This combination is likely where $SPX IWM will also reverse. Bounce8 can take $NDX all the way to the upper red resistance zone. TQQQ is one way to capture Bounce8. Updates 1:30 AM EST - Wednesday 6/24/20 Short term Tuesday morning market gave us the LRHR setup we were looking for. $VIX gapped down then reversed up, and IWM gapped up then reversed down. This gave us a perfect entry to short IWM via TZA. And even though an entry in TZA suffered turbulence during the day, TZA didn't drop down near its opening price. On the 5-minute charts, we have observed:
$NDX is leading the way here. It is now at the top of its yellow channel. It has just formed a spire top and a bearish island reversal pattern on its daily chart. Therefore the odds are high that we have just seen the end of Bounce7 for $NDX. $VIX $VXN both confirm that they are likely to rise on Wednesday. The percentages of stocks above the 200-day MA have not improved for either NYSE or Nasdaq. Note that we still may see $NDX $SPX IWM retest the highs of Tuesday 6/23 early on Wednesday. However, given the messages from market internals, $NDX $SPX IWM are unlikely to surpass these highs. So if we go with the calculation that $NDX $SPX IWM have finished forming Bounce7 today, we now must ask how low will the snapback to support go before Bounce8 starts. There are 3 levels. (See hourly charts and table below for S/R zones.) Shallow snapback to green support zones: Look for the following conditions that confirm that this is the case.
If both are true, $NDX $SPX IWM will most likely launch Bounce8 from the green support zones. Bounce8 in this case may rise as high as the red zones by the time it's done. Deep snapback to blue support zones: Look for the following conditions that confirm that this is the case.
If these conditions are true, then $NDX $SPX IWM will most likely launch Bounce8 from the blue support zones. Bounce8 in this case may not find enough bullish momentum to rise higher than the orange resistance zones. Drop all the way down past the bottom channel: Look for the following conditions that confirm that this is the case.
This would be the start of Dive2. NOTE: The S/R table below contains both the green shallow support zones and the blue deep support zones. 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 See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 11:25 AM EST - Tuesday 6/23/20 Short term If you have entered TZA this morning, don't forget to trail your stop upward. There is no guarantee of enough $RUT IWM sellers to bring down the index to the green zone. We always have to manage our risks, so protect all your entries. This is still a whipsaw market, not a trending market. Protect whatever the the market gives you as it is prone to reverse. Updates 9:22 AM EST - Tuesday 6/23/20 Short term This morning, we want to see the following LRHR setup to enter short against $RUT IWM:
It looks like $VIX will gap down. If $VIX $VXN both march up from their opening value within an hour, and IWM remains stuck in its orange resistance zone, then it's an LRHR entry for TZA and other shorts against IWM $RUT. Use tight stops and trade small. This is not a big ride down. This is definitely not Dive2 yet. Updates 12:26 AM EST - Tuesday 6/23/20 Thrust and Bounce We want to explain the concepts of thrusts and bounces here again, for the benefits of our new members. $SPX $NDX IWM hourly charts below show the starts and ends of the bounces thus far in this bear market rally. These bounces are our way of tracking and labeling the up and down segments within the rally. They are not the same as Elliot Wave analysis because that has a very strict set of interpretation rules. Our bounces get their reversal signals from market internals. On $SPX $NDX IWM 5-minute charts, we track the thrusts within each bounce. A thrust is when price gets pulled up and away from its 200 EMA (5-minute chart). Like a rubber band that gets stretched, after each thrust, price snaps back to support at the 200 EMA or sometimes the 50 EMA if it's very bullish market. In general, each bounce has 4 thrusts. Occasionally they get 5 thrusts, if market momentum is very strong. $SPX $NDX IWM were carrying the same thrust counts from Bounce1 through Bounce4. Then they started to diverge in their counts. IWM is the weakest, and $NDX is the most bullish. This does make tracking the thrust count a little trickier. Keep in mind that these thrust counts are not etched in stone. They are meant as guidance to give you an idea when a bounce is approaching the end, and is likely to reverse. Short Term $NDX formed Thrust4 of Bounce7 on its 5-minute chart on Friday 6/19. $SPX and IWM only formed Thrust3 as of that date. It is possible for $NDX to form Thrust5 while $SPX and IWM for their respective Thrust4. Furthermore, it is possible and highly probable that $NDX Thrust5 will be at the same level as Thrust4. But what does this all mean? It just means that $SPX $NDX IWM have been in Bounce7 for plenty long now. And except for the dramatic surge from 6/15 open to 6/16, prices have gone sideway in a tight range. They have been stuck in their orange resistance zones for 4 sessions now. Despite hope from the bulls for a possible breakout at end of day on Monday, futures are not showing bullish moves right now. The confusion about China trade deals has added to the selling pressure. When we look at $SPX $NDX IWM hourly charts below, what we see is this. There are just not enough buyers at the current price levels. In order for $SPX $NDX IWM to rise higher, they simply have to drop down to the new green support zones, so that they may attract more buyers. If $SPX $NDX IWM find support in their green zones, they will launch Bounce8. Bounce8 will take $SPX $NDX IWM back up to the orange resistance zones again, but Bounce8 may go as high as the red major resistance zones. If $SPX $NDX IWM drop below the bottom channels, then it means Dive2 is most likely starting. For Tuesday, we want to see the following LRHR setup to enter short against $RUT IWM:
A note about TVIX You may have noticed that while we rely on $VIX $VXN heavily, we don't discuss trading TVIX. Trading TVIX is like driving a race car. Fast and thrilling, but you can crash and burn easily. It's a high risk instrument. And it's not an ETF. It's an ETN which raises the risk even more. In general, ETNs are very risky, and Credit Suisse ETNs are very very risky. This is because Credit Suisse can't make up its mind if it wants to be in this business or not. So it randomly shuts down its ETNs, leaving the shares worthless (as in XIV), or stuck in limbo land (as may be the case with TVIX). In any case, here's the TVIX delisting announcement, and here's an article that explains your options. If it is at all possible to sell at open tomorrow, we recommend selling all of TVIX shares at market, take your money and run as far away from ETN as possible. And never ever invest in any offerings from Credit Suisse. They simply do not care about their customers. 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 See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 3:13 PM EST - Monday 6/22/20 Short term We mentioned earlier that $SPX $NDX are too bullish for shorting. This continues to be true right now. Even IWM is trying to rise back up into its orange resistance zone. It is best to wait for IWM to demonstrate that it is running into resistance in this zone, and for $VIX to drop down to near 30. This combination would be better confirmation that IWM is ready to drop, as part of the snapback to lower support. Otherwise, we are into the unpredictable period after Thrust4 of Bounce7 (which formed on Friday 6/19). Updates 1:35 PM EST - Monday 6/22/20 Short term LRHR setup to enter short TZA between 21.75 and 22.25 looks like an LRHR zone to enter, per explanations below. Updates 9:49 AM EST - Monday 6/22/20 Short term LRHR setup to enter short Bounce7 ended for $SPX $NDX IWM on Friday afternoon. We are now awaiting a low-risk high-reward (LRHR) setup for short entries. We recommend shorting $RUT IWM. This is the weakest index. $SPX $NDX are still looking too bullish for short entries. Monitor for IWM to get back up close to its orange resistance zone, and for $VIX to get down close to 30.5. This is an LRHR setup for short entry against $RUT IWM. This is a short-term trade. Expect to exit when IWM gets down into its green support zone. Short term LRHR setup to enter long We don't see any LRHR setup to enter long until $SPX $NDX IWM finish snapping back to support at the green support zones. 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 See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 6:45 PM EST - Sunday 6/21/20 LRHR Setup to short If you want to capture the snapback to the green support zone, stick with shorting $RUT IWM. This is the weakest index. Monitor for IWM to get back up close to its orange resistance zone, and TZA to get down close its green support zone. This is an LRHR setup for short entry against $RUT IWM. This is a short-term trade. Expect to exit when IWM gets down into its green support zone. Updates 5:04 PM EST - Sunday 6/21/20 In last weekend analysis, we wrote that $SPX $NDX IWM were likely to find support in the green zone on Monday 6/15, and they would rise up and get stuck in the orange resistance zone. This is pretty much what happened on 6/15 and 6/16. On Thursday 6/18, we wrote: There is now a better chance that $SPX $NDX IWM will be able to rise towards the top of their orange resistance zones. Keep in mind that this thrust is Thrust4 of Bounce7 for $NDX. Bounce7 is still on schedule to end after Thrust4. Indeed on Friday 6/19, $SPX $NDX IWM gapped up into their orange resistance zone as we anticipated. Then at 10:27 AM we wrote: Here are the conditions we are monitoring for to indicate Bounce7 is still intact.
Soon after, $SPX $NDX IWM dropped below the morning low, and $VIX rose up above 31.5. This combination told us that Bounce7 has ended. And as projected, $SPX $NDX IWM ended up with a bearish engulfing candle day. So now what? Bounce7 has ended. Are $SPX $NDX IWM starting the highly bearish Dive2, or are they just going to snap back to support at the bottom of the channel again? To answer that we turn to market internals. Volatility tells the story Since Bounce6 ended on 6/8, $VIX 200-hour EMA has been rising steadily. $VIX surged out of its yellow channel on 6/11, and has not gone back in. As long as $VIX stays above this channel and its 200-hr EMA keeps rising, $VIX has a good chance of surging back up substantially. When it does, it will be bearish for stocks. The equity put/call ratio also shows a bearish picture for stocks. Observe how its 20-day EMA blue line formed a W bottom between late January and the start of the crash in February. Now the 20-day EMA blue line is in the same zone and is forming the same W pattern. This is bearish for stocks. Market breadth is now forming a head and shoulder pattern on its daily chart, indicating breadth is likely to decline. The percentage of stocks above their 200-day MA has dropped sharply last week. NYSE dropped down to below 30%. Nasdaq went from 86% in early June to 69% now. The big picture and the long-term portfolio What market internals are telling us is that conditions are turning bearish under the hood. Still, Dive2 is not necessarily here yet. We may observe a bearish divergence between $SPX $NDX IWM and market internals for a while. We could be very wrong, but market internals seem to eventually assert their main messages, and prices eventually wake up to this fact. This is why we think Dive2 is still a strong possibility in the near future. This is why we are not planning to deploy our long-term investment capital into equity just yet. But at this point, we are not anticipating $SPX going all the way back to its March low either. $SPX weekly chart below shows key Fib retracements and where support lies. The zone between 2650 and 2800 is a strong support zone for $SPX. But if 2650 does not hold, $SPX could easily drop down to 2450. Short-term So in the big picture, we know that conditions are turning bearish under the hood. $SPX $NDX IWM are likely to drop on Monday. If $SPX $NDX IWM drop below their green zones (in the hourly charts below), then Dive2 is most likely starting. But as long as $SPX $NDX IWM stay above the bottom of their green zones, they can potentially start Bounce8. This is true even if market internals continue to send out bearish messages. (This is the bearish divergence we mentioned above.) Medium term The hardest trade to manage right now is the medium-term trade. The bear market rally may linger a while longer, but conditions have turned bearish under the hood. This means that stocks are vulnerable to a sudden major sell-off. $SPX $NDX IWM may suddenly gap down below their respective green support zones. This is what happened on 2/20, without much warning. One strategy to consider is to collect profits and exit medium term positions fully. Then switch to short-term trades until Dive2 arrives. 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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