Updated Thursday 8/29/19 11:54 PM EST Market context Yesterday we wrote: “...Major Pullback2 is losing its selling momentum. If prices can survive August 23, they can survive a lot of dramatic events. So this suggests that Surge7 is around the corner. The Up Trend that started on 12/26/18 is likely to resume soon….Market internals have enough data at this point to send out a definitive bullish message in unison.” When market internals are all sending out the same bullish message, what it means is this. Under the hood, stocks were primed for buying again, not more selling. All that was needed was a positive catalyst of some sort. The positive catalyst came in the form of 2 imaginary phone calls from China during the night. It was enough to spark some bullish buying overnight, and a gap up for stocks in the morning. What you experienced in the last 24 hours was the power of market internals at work. They don’t always agree with each other. But when they are all shouting the same message, it literally pays to sit up and take notice. Table of support and resistance levels Below is the updated S/R table. We have revised the table a lot, and added multiple close levels of support. This indicates that $SPX $NDX have formed some firm anchoring layers from which they are likely to rise. Updates from market internals Market internals are all saying the same thing as yesterday: “we are bullish”. Market breadth, in the form of NYSE and Nasdaq Advance Decline lines, has turned up more definitively. NYSE and Nasdaq percentage of bullish stocks confirms the bullish message of their A/D lines. CBOE equity put/call ratio continues its downward trending pattern. It may surge back into sell territory briefly again, but it is unlikely to form a higher top. What this ratio is saying is that traders are setting up for more buy scenarios. The leading indicator is volatility. $VIX $VXN gapped down today and stayed down. They have clearly formed a 2nd top on their respective charts. This top is a lower high top. $VIX $VXN appear to be marching down at least for a little while. $VIX can go as low as 15, while $VXN can go as low as 19, before they attempt to rise up again. This is all very bullish for stocks. We think that Major Pullback2 is transitioning into Surge7 of the Up Trend. Planning your trades Bullish Setup Futures are marching higher as we write this. So there is a high probability that $SPX $NDX will gap up to the new Resistance1 tomorrow Friday. If that happens, there is a high probability that $SPX $NDX will drop back down and do one more re-test of Support1. And if they find enough buyers at Support1, $SPX $NDX may be able to push through Resistance1. The re-test of Support1 is where you may want to consider a long entry into $SPX $NDX SPY QQQ TQQQ. We will be building our core TQQQ positions at this level. The odds are high that next week will be bullish for stocks, based on the message from market internals. The odds are high that $SPX $NDX can reach Resistance2 early next week. Market will be closed on Monday 8/2 for Labor Day weekend. It’s a long enough period that we may get a negative tweet storm. But when stocks have a bullish bias under the hood, their prices may drop some, but they are unlikely to drop way down past Support4. Bearish Setup There is no major bearish setup worthy of your attention at this point. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them.
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Updated Wednesday 8/28/19 11:43 PM EST Market context When we zoom out a bit and look at the big picture, we observe something interesting. The most dramatic price drop for Major Pullback2 came on August 5, four days after the first China tariff tweet of August 1. This was accompanied by a dramatic surge in $VIX $VXN. On August 23, we had a very dramatic day in terms of events:
This tells us that Major Pullback2 is losing its selling momentum. If prices can survive August 23, they can survive a lot of dramatic events. This suggests that Surge7 is around the corner. Major Pullback2 is approaching its end. The Up Trend that started on 12/26/18 is likely to resume soon. Table of support and resistance levels Below is the updated S/R table. The new Support1 level is today’s low. We have reasons to believe that stocks are unlikely to drop below Support3. Updates from market internals Market internals have enough data at this point to send out a definitive bullish message in unison. Market breadth, in the form of NYSE and Nasdaq Advance Decline lines, has turned up more definitively. Nasdaq A/D line is still lagging, and at some point in the future, this will come back to seriously haunt us. But for now we’ll take their bullish message at face value. NYSE and Nasdaq percentage of bullish stocks confirms the bullish message of their A/D lines. CBOE equity put/call ratio is in a downward trending pattern. It may surge back into sell territory briefly again, but it is unlikely to form a higher top. What this ratio is saying is that traders are setting up for more buy scenarios. The leading indicator is volatility. $VIX $VXN have now clearly formed a 2nd top on their respective charts. This top is also a lower high top. This is all very bullish for stocks. Planning your trades Bullish Setup Tomorrow Thursday, there is a strong possibility that $SPX $NDX will drop down to test Support1 to start. Chances are good that $SPX $NDX will find enough buyers at Support1 to rise up from there. They have the capability at this point to rise as high as Resistance3, before having to test the lows again. We think that the low-risk, high-reward, high-probability trade is to wait for this re-test of Support1 to enter long $SPX $NDX $SPY $QQQ $TQQQ. Bearish Setup There is no major bearish setup worthy of your attention at this point. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. Table of support and resistance levels We have updated the S/R table below to include a new Support1 level, which is essentially the low of Monday 8/26. Updates from market internals Market internals have now switched to a bearish bias again. They are not severely bearish, but they are on the brink of forming the kind of patterns that would be highly bearish. What this tells us is that under the hood, stocks are really struggling for direction. The one indicator that looks short-term bullish is volatility. $VIX $VXN charts are showing a high probability of dropping over the next few days. As volatility drops, stocks will rise. Since $VIX $VXN charts are the leading indicators, we need to give their message extra weight. And we have to work with this conflicting information. Planning your trades Bullish Setup Tomorrow Wednesday, if we see $SPX $NDX drop down early, they are very likely on their way to retest Support1, and possibly drop all the way to Support2. Then we may see bargain hunters stepping in. If $SPX $NDX find enough support in the low zone between Support1 and Support2, they can rise from there to reach Resistance3 eventually. We think that the low-risk, high-reward, high-probability trade here is to wait for this re-test of the low zone to happen successfully. Then you can enter long $SPX $NDX $SPY $QQQ $TQQQ. Expect to ride at least up to Resistance1, though we think they can rise all the way up to Resistance3. Bearish Setup We may see another setup tomorrow where $SPX $NDX may gap up to re-test Resistance1 one more time and fail. If this happens, $SPX $NDX can rapidly drop down to Support2, and possibly fail at that level to cascade down to Support3 eventually. In this scenario, the low-risk, high-reward, high-probability trade is to wait for this re-test of Resistance1 to happen, and for it to fail. That would be a good place to enter SQQQ or other shorting mechanism. Expect to ride down at least to Support2, possibly all the way to Support3. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. Updated Monday 8/26/19 at 11:54 PM EST Market context Market has been jerking traders around like a puppet on a string. After the wildly bearish events of Friday 8/23, market participants were exhausted today. So the fact that the US didn’t go to war with any of the G7 countries, or Iran, or whatever, was enough of an excuse to start some bargain hunting. We discussed in our post last night how the weekly charts of all market internal indicators were starting to have a bearish bias. However, a bearish bias does not mean the start of an immediate bear market. For the short-term, it appears that $SPX $NDX are back into their range trade mode once again. There is a reasonable possibility that $SPX $NDX may be able to work their way to rise out of the current range soon. Updates from market internals On a short term basis, market internals have now switched to a bullish bias. NYSE and Nasdaq Advance/Decline lines rose up a bit today. Not enough for us to say that market breadth has turned bullish. It’s more like the A/D lines have escaped the big drop for now. The same is true with NYSE and Nasdaq percentage of bullish stocks. They are possibly done dropping, and may attempt to rise in the short term. But more data is needed. Like the above indicators, CBOE equity put/call ratio changed its short term message from bearish to bullish. This ratio is quite tricky to interpret. What we can tell you is that in the intermediate term, the ratio tells us that stocks have a chance of rising out of their current lows. The most decisive message for the short term came from $VIX $VXN charts, as always. $VIX $VXN daily and hourly charts show that the 2nd top has formed. This is bullish for stocks. If we don’t get some very negative catalysts (i.e. mind-blowing tweets), $VIX $VXN may start marching downward soon. If this happens, $SPX $NDX $RUT will march upward correspondingly. So in the short term, $VIX $VXN charts support a rise in stock prices. Table of support and resistance levels We added Resistance3 to this table. You may notice this is the top of the big trading range. You may also notice that Resistance1, Resistance2, Resistance3 are fairly close together. They are not Fib retracement levels. They are price levels that have important psychological impact on market participants. So if $SPX $NDX can manage to rise above all 3 resistance levels, they may very well resume the Up Trend. Planning your trades It’s difficult to spell out the next series of moves, so we offer you this hourly chart of $SPX to explain. What the chart above shows is not an Elliot Wave pattern. Instead, it shows that in order for $SPX to rise out of the current trading range between Support1 and Resistance3, $SPX needs to make a series of zigzag moves similar to above. The odds of $SPX $NDX just rising straight up from today’s low in a V reversal, all the way up to the high of July 29, are very low. The odds of $SPX $NDX just dropping straight from today’s price range to below Support4 is also very low. Prices are likely to continue moving in a zigzag pattern, with either an upward tilt, or a downward tilt. That’s how they will most likely work their way out of the current big range. So as short-term traders, we cannot assume that we’ll have a steady downward marching trend, or a steady upward marching trend. Instead, we have to trade these major swing segments one day at a time. Tomorrow or Wednesday, we are likely to see $SPX $NDX re-test today’s lows. If they find support there, they will likely surge up above Resistance1, in an attempt to test Resistance2. So expect a lot of swings. And expect a lot of testing of key price levels. Trade with small positions. Take your profits quickly. Don’t expect any real trend to emerge soon yet. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. Updated Sunday 8/25/19 at 9:12 PM EST Weekend updates By now you are likely to have read about Friday’s 8/23 fiasco. There is no doubt that the trade war with China is escalating in a major way. There are doubts that the problems can be fixed easily and quickly. There are 3 items that we want to draw your attention to. Taken together, they are major red flags, telling us that there are plenty of fundamental reasons for Major Pullback2 to morph into a new Down Trend. First, Fed Chairman Jerome Powell said in his 8/23 speech: “We have much experience in addressing typical macroeconomic developments under its policy-making framework … but fitting trade policy uncertainty into this framework is a new challenge.” Translation: The Fed has limited power to overcome the economics and financial problems brought on by a prolonged trade war. Second, the Bank of England Govenor Mark Carney said on 8/23: “There is a growing risk of a global liquidity trap.” Third, from Bloomberg: “U.S. companies are concerned about President Donald Trump’s threats to ban them from doing business in China, and they’re poised to halt new investments if the trade war escalates, the leader of group of top chief executive officers said.” As we write this, S&P, Nasdaq and Russell futures all gapped down at open, and are struggling for traction. Yen and Treasury contracts climbed. The yuan weakened and stocks are dropping sharply in Asian markets. These conditions certainly look very bearish for Monday. Updates from market internals The charts for all market internal indicators, on multiple time frames, are all shouting the same message: “very bearish”. In fact, market internals are bearish enough to turn Major Pullback2 into a new Down Trend. NYSE and Nasdaq Advance/Decline lines turned down sharply, especially for Nasdaq. In fact, under the hood, Nasdaq A/D line has been looking much weaker since after the May sell-off. The A/D line measures market breadth, and Nasdaq market breadth never recovered as robustly as NYSE. This is bearish for stocks. NYSE percentage of bullish stocks dropped to 45%, while the chart pattern of Nasdaq percentage of bullish stocks formed an ominous signal, indicating a strong possibility of a lot more decline. CBOE equity put/call ratio is showing that stocks are actually not oversold yet. This is bad news for the bulls. This ratio is now forming a strong base, from which it is very likely to surge into selling territory. This is true for all time frames: hourly, daily, and weekly. As this ratio surges, stocks will drop sharply. The most worrisome charts for stocks are $VIX $VXN weekly charts. They are forming the kind of patterns that indicate they are setting up to rise by a lot. $VIX can rise as high 36. $VXN can rise as high as 39. As volatility surges, stocks will drop sharply. Table of support and resistance levels We have revised this table once again to show how the landscape has changed substantially for price. Observe the new Resistance1 and Resistance2 levels. They are much lower than what they used to be. We think that in the short-term, it is going to be very hard for stocks to rise above last week’s highs. Planning your trades At this point, the low-risk, high-reward, high-probability setups to look for are short entries during $SPX $NDX attempts to bounce back up. There are still a lot of retail traders with the “buy-the-dip” mindset. And big money still needs time to unwind since all of this happened so fast. Therefore, there is a strong possibility that $SPX $NDX will attempt to rise up, during the day tomorrow Monday. They will attempt to re-test the new Resistance1 level. $SPX $NDX will most likely fail to rise above Resistance1. When that happens, $SPX $NDX are likely to drop sharply down to Support1, to re-test the lows of August 5. Therefore, a good short-term trade is to enter short at Resistance1, trail the protective stop as prices head down, and really tighten the stop as prices approach Support1. Depending on how negative the headlines are, there is also a chance that once they fail to rise above Resistance1, $SPX $NDX will drop all the way down to the new Support2 level, before there is a chance of a bounce. We will monitor market internals for confirmation as $SPX $NDX approach Resistance1. We plan to enter SQQQ in this zone ourselves. If the headlines don’t substantially improve soon, $SPX $NDX are likely to cascade down to Support3 or Support4 later this week, after they attempt to rise tomorrow Monday. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. Updated Thursday 8/22/19 11:48 PM EST Fed Chairman Jerome Powell is scheduled to give a big speech tomorrow Friday at 10:00 AM EST from Jackson Hole. Updates from market internals Market internals are back to sending mixed messages, showing that under the hood stocks are struggling for directions. NYSE and Nasdaq Advance/Decline lines turned up sharply today, which is bullish for stocks. NYSE and Nasdaq percentage of bullish stocks also turned up today, confirming the above bullish message. However, CBOE equity put/call ratio spiked up immediately at open today, and rose up a good amount, showing that traders were getting nervous. This spike in the ratio matched the corresponding drop in $SPX $NDX $RUT prices this morning. The leading signal of all market internal indicators is volatility. $VIX $VXN are confirming that they are forming a complex base, from which they can spike up a good amount. We may see $VIX spike back up to 22, and $VXN surge back up to 25. As volatility rises substantially, $SPX $NDX $RUT prices will drop substantially. So despite the fact that market internals are sending out mixed messages, $VIX $VXN suggest that $SPX $NDX $RUT will swing low one more time before Major Pullback2 is done. Major support and resistance zones This table has been updated to reflect the fact that we don’t think $SPX $NDX will climb that high above today’s high, before they are likely to drop down to finish the last leg of Major Pullback2. Planning your trades Everything of course pivots around the outcome of Powell’s speech. But in terms of capturing the major moves, monitor $SPX $NDX for failure to rise above the Major Resistance zone. We will monitor for this scenario, and look for bearish confirmation by market internals. This is potentially a good setup for shorting $SPX $NDX. The other major move, of course, is monitoring $SPX $NDX for finding support at Major Support zone. We will monitor for this scenario once price drops down to this level, and look for bullish confirmation by market internals. This is potentially a good setup for entering core long positions to ride Surge7 back up. We plan to trade both of these major moves ourselves. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. Updated Wednesday 8/21/19 8:10 PM EST Was Major Pullback2 really due to economics fundamentals? In preparation for Powell's speech on Friday 8/23, it is important to step back and review how we got here with Major Pullback2. As early as 7/25, market internals were starting to send out bearish messages. They were saying that under the hood, stocks were primed for selling. All that needed was a negative catalyst. We got not just one but two negative catalysts. FOMC disappointing 0.25% rate cut on 7/31, combined with the tariff tweet that almost resulted in a currency war on 8/1 rattled investors in a big way. $SPX $NDX $RUT dove between 8/1 and 8/5. However, despite talks inverted yield curve and other harbingers of a recession, the US economy is not on the verge of a collapse yet. In fact, a good chunk of the sell-off in Major Pullback2 was driven by systematic selling. According to Bloomberg: “In a week when the key part of the yield curve inverted and recession fear sparked an equity rout, systematic strategies posted $75 billion of programmatic selling, more than half of which came from index option delta and gamma hedging, JPMorgan’s analysis found. The rout pushed hedge funds’ equity exposure to near record lows and that of trend-following and volatility-targeting funds to the 27th percentile relative to history. Such low positioning is a positive signal for stock performance, according to Marko Kolanovic (JPMorgan analyst).” So the probability of a new major selling that will take stocks down to 12/24/18 level is low. In fact, the probability of $SPX $NDX retracing back to 6/3/19 is relatively low as well. At the same time, it is unlikely that the Fed will announce a 1% rate cut and the start of QE again this Friday. So the idea of stocks skyrocketing from today’s level immediately to a new all time high is also extremely unlikely. So what are the likely scenarios then? First, let’s get an update from market internals. Updates from market internals CBOE equity put/call ratio spiked up right before FOMC minutes were released today. But then it dropped back into “buy” mode. This ratio is forming a pattern indicating that it can stay in “buy” mode for a bit, before rising back into “sell” mode for one last time. $VIX $VXN dropped some more today. Similar to the above ratio, $VIX $VXN are forming the patterns indicating that they are likely to drop a bit more, before surging again to form a 2nd top to indicate the end of Major Pullback2. NYSE and Nasdaq Advance/Decline lines turned up today, which is bullish for stocks. NYSE and Nasdaq percentage of bullish stocks also turned up today, confirming the overall bullish message. So market internals are sending out short-term bullish messages for now. They are saying Major Pullback2 is not really done yet, but we may see prices rising in the short term. Major Support and Resistance Zones Given that market internals are now turning bullish in unison, we have to consider the possibility that $SPX $NDX may find support at a higher level than what we projected before. We would like to draw your attention to two important price zones that are likely to determine the movement of stocks in the short and intermediate term. Sometimes when the market is at a major inflection point, it is important not to get too hung up on the intermediate S/R levels. It’s more crucial to identify zones that will prove to be major support or resistance. Big price movements tend to come out of activities in these zones. There is a high probability that $SPX $NDX may rise up into the Major Resistance zone tomorrow Thursday, or Friday 8/23. There is also a high probability that $SPX $NDX will fail to surpass this zone, and will start the final leg down for Major Pullback2. This can happen after Powell’s speech, or more likely next week. There is a high probability that once $SPX $NDX drop down into the Major Support zone, they will find enough buyers to rise out of there. That is likely to be the end of Major Pullback2, and the start of Surge7 of the Up Trend. Planning your trades We cannot tell you exactly how these movements will unfold relative to Powell’s speech on Friday. But in terms of capturing the major moves, monitor $SPX $NDX for failure to rise above the Major Resistance zone. We will monitor for this scenario, and look for bearish confirmation by market internals. This is potentially a good setup for shorting $SPX $NDX. The other major move, of course, is monitoring $SPX $NDX for finding support at Major Support zone. We will monitor for this scenario once price drops down to this level, and look for bullish confirmation by market internals. This is potentially a good setup for entering core long positions to ride Surge7 back up. We plan to trade both of these major moves ourselves. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. Updated Tuesday 8/20/19 11:48 PM EST Current market context $SPX $NDX are currently in Major Pullback2 within the Up Trend that started on 12/26/18. Major Pullback2 arrived on 7/31, with plenty of warnings from market internals. Within the current Major Pullback2, we have had 2 bounces due to oversold conditions. The first was from 8/7 to 8/8. The second bounce was from last Thursday 8/15 to Monday 8/19. By the end of Monday, oversold conditions were disappearing. So today, prices pulled back by a small amount. However, for the most part, trading activities were subdued. No one wants to take a heroic stance before FOMC minutes tomorrow Wednesday, and Fed Camp in Jackson Hole this coming Friday 8/23. Table of support and resistance levels This table has the same values as yesterdays. Conditions have not changed very much. Updates from market internals By end of day yesterday Monday, CBOE equity put/call ratio indicated that stocks were no longer oversold. Today this ratio is in the process of anchoring itself to rise back up again. When this ratio rises past its mid-level, it indicates that traders are bearish. Similarly, $VIX $VXN charts are forming a pattern indicating they are ready to rise up again soon. Rising volatility is bearish. NYSE and Nasdaq Advance/Decline lines turned down today, switching back to the bearish pattern. This is particularly true for Nasdaq A/D. NYSE and Nasdaq percentage of bullish stocks dropped down again, confirming the bearish message from the A/D lines. So the message that market internals are saying is that under the hood, stocks have gone back to the bearish bias. Planning your trades It is important to note that this bearish bias may persist while stock prices climb higher. When this happens, we have a bearish divergence from market internals. And market internals usually win with their messages. So at some point soon, prices will catch up with the bearish attitudes of market internals. That means potentially more serious selling ahead. However, it still does not pay to jump in front of the Fed. Be patient. Let market internals have time to really form a bearish divergence. With the potential bearish divergence as the backdrop, you can go into Friday Powell speech looking for bearish setups to enter short. But again, give the signals time to develop. Don’t waste your time and money with the small trades between now and then. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. Updated Tuesday 8/20/19 12:30 AM EST Current market context In the big picture context, the Up Trend that started on 12/26/18 is still intact. $SPX $NDX are currently in Major Pullback2 within this Up Trend. Major Pullback2 arrived on 7/31, with plenty of warnings from market internals. Within the current Major Pullback2, since Thursday 8/15, $SPX $NDX had been in a bounce that resulted from oversold condition. As prices rise up, the oversold condition fade away. This bounce is now rapidly approaching a strong resistance level. Tomorrow Tuesday we are likely to see some interesting resolution as $SPX $NDX actually reach resistance. Table of support and resistance levels We have updated the S/R table. What used to be Resistance2 from yesterday’s table is now Resistance1. And there is a new Support1 level. We think that some interesting stuff may happen between the new Resistance1 and Support1 levels over the next few days. Updates from market internals Late Thursday 8/15, CBOE equity put/call ratio flashed the message that stocks were quite oversold, and were due for a bounce. And the bounce happened. However, today this ratio entered into full “buy” territory. So the oversold condition has been greatly reduced. This ratio is now showing that it may start to switch back to “sell” territory soon. Since late Thursday 8/15, $VIX $VXN charts had been forming a pattern that typically indicates a temporary respite from the surge in volatility. However, today they form a new pattern indicating volatility is ready to rise up again soon. NYSE and Nasdaq Advance/Decline lines turned up sharply today, showing a potentially bullish change shaping up under the hood. NYSE and Nasdaq percentage of bullish stocks confirm the message from the A/D lines. So what we have now are mixed messages from market internals. We need to just wait it out. Market internals don’t usually make any major moves without sending out advance warnings. So our job is simply to just wait and see. FOMC minutes will be released on Wednesday 8/21. Jackson Hole Fed Camp will start Thursday 8/22, and Powell is scheduled to speak Friday 8/23. There are so many events this week that can twist and turn market sentiments suddenly. So our advice to you for planning trade scenarios is this. Take a few days off. Come back Friday. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. We would like to extend a warm welcome to the large number of members who have joined us recently. Please make sure you read this info to better understand our trading system, which is uniquely based on market internals. Current market context In the big picture context, the Up Trend that started on 12/26/18 is still intact. $SPX $NDX are currently in Major Pullback2 within the Up Trend. Major Pullback2 arrived on 7/31. Market internals sent out this message in advance for multiple days, and it got very loud by 7/30. What started out as Dip6 became Major Pullback2 after FOMC announcement, fueled downward by the tariff tweet on 8/1. Within the current Major Pullback2, market has transitioned from short-term sell mood to short-term buy mood since Thursday 8/15, as the analysis of market internals below show. This analysis will show how long we can expect the short-term buy mood to last, and what to expect after that. Table of support and resistance levels Updates from market internals Since late Thursday 8/15, market internals have been slowly sending out these messages.
Together market internals are saying that the sell-off will likely pause for a bit this coming week of 8/19. $SPX $NDX will most likely rise up toward Resistance2. However, the odds of $SPX $NDX surpassing Resistance2 is low. The key trigger that will launch the next major move is the failure for $SPX $NDX to rise above Resistance2. When this failure is confirmed, $SPX $NDX will most likely resume the selling. Given that Jackson Hole Fed Camp will start Thursday 8/22, and Powell is scheduled to speak 8/23, this oversold bounce will most likely end by the time Powell speaks. There is a good chance we will see $SPX $NDX start dropping hard after the speech as Major Pullback2 resumes its selling momentum. There is a high probability that the selling will take us rapidly through Support1, down to Support2, and eventually Support3. Major Pullback2 will most likely end when $SPX $NDX reach Support3. There is a good chance that this will happen by the end of August. However, we have to wait for market internals to confirm this first with new bullish messages. Trade scenarios to plan for If you want to capture the oversold bounce, the short-term rise up to Resistance2, look for intraday pullback tomorrow Monday 8/19 for the opportunity to enter long. Keep in mind that this is just a short-term respite from all the selling. So keep your long position small, with tight stops, and lock in profit quickly. The high-probability, high-reward trade is to enter short when the selling resumes. However, you need to be patient for this one. Consider going to cash by Friday 8/23, before Powell is scheduled to speak. Like any other FOMC meeting announcement, monitor closely during and after his speech for the resumption of the selling. Of course, the Fed could surprise everyone in a bullish way by announcing something entirely unexpected like QE4 (or is it QE5?) You can imagine the bullish reversal that might take place in that scenario. So the key take-away here is don’t jump in front of the Fed. Cool your heels and your cash as Friday approaches. And be ready to act swiftly. Disclaimer The information presented here is our own personal opinion. It is intended to supplement your own research and trading systems. Consider it as food for thought. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. Note that we trade highly risky 3x leveraged ETFs. You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you. Please read more about them before trading them. |
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