US Stock Indices

[Mercury]

At present I see all 3 of the main US indices I follow trending together (indeed trending will all the other global markets as well...) so I thought I'd start a topic to cover these markets together (S&P500, Dow, Russell 2000).

 

I'll use the S&P 500 as a proxy for all of them to get started but all three show similar trends (albeit that the Russell 2000 seems to lead the other 2 larger Caps).

 

Overall my long term analysis on the weekly chart indicates that we have seen the top of the bull run from the 2009 credit crunch Bear and have begun a new Bear descent (W1-2 complete and W1-2 of W3 also complete).  BUT, there is as always a possible alternative that predicts new all time highs before the Bear actually starts.  Presently I think that latter scenario is more unlikely but one can't rule it out just yet.  If and when the Bear does get going it will be a monster in my view as I think we still have fallout hanging over from the Credit Crunch that was delayed not avoided by the central bank shenanigans!  Stochastic is nearing over bought territory in the weekly as well.

 

Looking at the Daily chart the EW counts are persuasive (the alternative is still there too).  We had strong Pos Mom Div at Pink W1 which resulted in the very strong rally we have been in of late but that rally has had few retraces and we are overdue a big one (these markets always go in waves and such a strong rally is not sustainable).  We have Neg Mom Div between Wa and Wc (Blue labels), a classic EW bearish signal, and bearish signals on Stochastic and RSI as well.  In addition the price action has just missed (a couple of points) the 76% Fib from the all time high to W1 bottom and fallen in between the 76% and 88% retrace of Purple W2 high.  In addition the market turned right on a strong down trending tramline with a strong corresponding lower tram line.  All this adds up to very strong resistance at 2057.

 

Even if the Bear market is in play there are at least 2 possible scenarios from here.  Either this is a completed A-B-C retrace to W2 (my lead option), which will result in a W1-2 before a big drop begins OR we have just had a Wa and will now get the B-C to complete.  I would expect an earlier turn back up in the former scenario (maybe almost getting to a double top) but in the latter this current drop should be very heavy indeed (min 62% Fib with 76% very likely).  The shape of the drop will give us some clues as well and if we do get a B-C I don't expect the Wc to be much higher than the Wa (otherwise the all time highs scenario is in play).

 

Looking at the Hourly I see a clear rally wave end and turn.  A breach of an ending Triangle formation with a kiss back.  A breach of a possible secondary Triangle with no kiss back this time and we are currently in a small W iii of small W1 of 5 (perhaps unless it is a Wb of course).  Very strong Neg Mom Div to match the Daily one and now perhaps coming up on a relief rally of the Wiii (could be the small W1 already, time will tell but either way a relief rally before a larger drop is indicated).

 

As I write the market has dropped further.  Hold on to your hats, this could get very interesting and very lucrative.  If you are not in Short yet there will be more opportunities but practice good money management and stop protection as the all time high scenario is still out there...

 

Please do comment is you agree/disagree.

 

Here are the charts:



 

 

[Welshman]

Hey Mercury,

 

Further follow up. I don't trade the S&P but do trade the DOW, refer our previous discussions on the topic. I have 2 valid counts for the current DOW setup:

1 Triangle (my favoured count)

2 1-2,1-2

 

If the triangle option completes then we're in for a new ATH in W5. The more bearish option leads to much more significant downside which is in line with your forecast.

 

Having got stopped out of my DOW trade last week (too early again! ) I'm now waiting for a good enough pullback to enter . I wish you good pippage whatever transpires:) won't post that chart here to save confusion.

 

 

 

 

Btw I think you also posted about EURGBP last week, it might just have started to descend as I have a first full 5 waves down (on 5 min chart) ..

[Mercury]

Hi Welshman, yes I think the set up is more or less the same on S&P and DOW, although the latter has a few peculiarities.  For my money I'd want to see the Triangle on both plus Russell 2000, Dax and FTSE (this one can be different because of the large number of miners and Oil companies!).  The next few weeks should clarify the picture a bit more although until we have another down/up/down we won't really know.  This is all likely to happen within your Triangle, which is very large, and so I'd be looking for corroborating evidence elsewhere as the Triangle along may not help you identify the trend.

 

Re EURGBP, yes I agree.  I got in way too early on that one and it looks like your view (I think it was you) that we would get a new high was correct.  I can make a 1-5 up but the W5 is not strong so the issue is whether this is really just a brief retrace before a final push up to stronger resistance.  I'm seeking to exit my too early positions at B/E with a position at the turn compensating for the error but will keep an eye on both vs USD to tey and get some steer.

[Guest Condor]

Hi Mercury/Welshman, my thoughts...also looking to take a short position on US500 with a stoploss in case of a breakout north(might it go up to December levels?)....

• Thinking resistance around 2050 (Mercury you mention 2057);
• Support around 2020 - albeit if that broken could it go as far south as 1830? & rapidly?  particularly interested on your thoughts on how low it could go and how quickly based on your EW analysis (where can I read up more on that - would love to know a recommended source/explain on using that method - struggling to follow your notation/references on points on the wave.)
• Obviously getting on the WaveC of a Corrective trend could be marvellous;(Wikipedia explain)
• I attended the IG Seminar Technical Analaysis on Wednesday afternoon at Dowgate Hill and ChrisB(IG) mentioned that he sees support around the 1830 level on the US500;
• You might be also interested to know ChrisB is not a fan of Dow as an index because of its construct (price weighted) meaning 1 or 2 companies could potentially move it  - reckoned US500 a better index;

Not an experienced tech analyst but wanting to learn in the community - hope thats ok / appropriate

Thanks

[Mercury]

Hi Condor,

 

First of all, of course it is ok.  So long as one is open minded and looking to learn or get diffferent perspective via open discussion then anything goes (except abuse of course...).  I'm always delighted to hear someone disagree with me or offer insight I don't have.  I'm sorry you are finding it hard to follow my posts/charts, I'm trying to be as comprehensive as possible but have to assume a certain level of knowledge or it becomes too cumbersome and there are plenty who don't like posts longer than a few lines, but hey they don't have to read them right?

 

I agree with ChrisB re the Dow but it is still a heavily traded market so worth following.  The S&P is more balanced and the biggest market in the world, I think, so probably the best overall benchmark.  I prefer to trade the S&P and FTSE for long term strategic trading because they are big diversified markets (though watch out for the 33% or so of mining/oil in the FTSE...).  I do like the Dow as well but only trade the Dax as a swing trader.

 

Regarding Elliot Waves, most people seem to use Elliotwave international ( http://www.elliottwave.net ) but if you search for books there are loads on the subject.  I am not a 100% EW aficionado myself and only use the most basic parts of the theory.  My feeling is that there are too many exceptions (e.g. truncated Wave 5s that don't actually make a higher high but are still counted as a 1-5) and too much time spend trying to make sense of complex formations (e.g. W3-4 complex retraces).  I prefer to recognise it as complex and leave it alone until it breaks the Triangle.  Like everything, I think one can get too locked into a particular theory or method so I take what I can make sense of and use and add it to other pieces (e.g. Fib retrace; tramlines, support/resistance and key indicators) to build an overall picture I can manage with my small brain.

 

The best set up is to get on the start of a long term Wave 3 but a Wc can be good too, as you say.  The trick for me is to understand that at most times there are at least 2, often more, possible scenarios and to constantly reevaluate until you have virtually no doubt and then place the trade.  I call this "stalking the trade".  You should be able to create a routemap to both your trade entry point and likely exit points in this way but have to refine that routemap as you get more data. 

 

As to the S&P500 today, it has bounced off the 76%Fib retrace from the recent high/low and is heading back down.  I took another short at the 62% level on the way down with a close stop just above the 76% level  It could be that we have seen the W1-2 of larger W1 down (most likely in my view) or perhaps not yet completed the small W1 down (either way it goes down).  There is always a chance that the whole thing will explode back up (hence the need for close stops and moving to break even as soon as possible, without getting shaken out of a good set up).  One thing at least seems clear, we have finished with the Triangle formation and this bodes well for a drop.

 

Here is the chart:



[Guest Condor]

thanks  for the encouragement, I'm keen to learn EW etc.  so first port of call will be the EWsite you posted above.  I have no issue with the length of your posts + charts I'm enjoying the read so you won't hear me complaining.  I'll be getting more out of them when I have got my understanding up from EWsite.

I positioned for the drop today on US500 so if it goes anywhere near 1830 (a previous support level) anytime over the next 7-12 weeks I'm going to be delighted. 

 

[Mercury]

Interesting!  US Futures and FTSE100 seem to like the jobs data, do they think it is indicative of a weak NFP tomorrow and therefore supporting Fed procrastination on interest rates as indicated by Yellen's recent NY speech?  How long will it last before jitters sink back in?

 

Does anyone have a view on what a strong or weak NFP will result in?  I think we are back to bad economic news is good news for markets because of Central Bank interference...

[Mercury]

There is an interesting recent change too, the expected result of CB actions is having the reverse effect (e.g. Draghi and BoJ actions drove their currencies to actually strength and stock market to go down).  Will the US begin to follow suit or will we get another round of stimulus fueled fantasy buying?  A lot of the pundits have been saying buy Japan and Europe backed by stimulus but sell US because the CAPE is so high but so far the reverse would have yielded a better, not that I think that will remain the trend. 

[Mercury]

The Dow is running way ahead of the S&P and the Russell (and all other markets for that matter).  This is unsustainable.  Of course the others may catch up but my thinking is the buy the dips boys have come in but this rally will most likely run out of steam pretty quickly.

 

Pity we don't have volume figure on the indices, if I could see that this was small volume it would be an absolute shoe in for a short lived rally.

[Mercury]

OK S&P and Dow turning back at the 76% Fib and Russell at the 62% (also at Daily down sloping tram and strong resistance zone).

 

Strong move up to this point but that is entirely consistent with the the last few rallies so Shorts have to be a decent bet right?

[Guest MrJake]

Hi Everyone

 

I don't anything to input except for a thank you to you all for sharing this information and your thoughts on such

 

Regards

 

MrJake

[Guest Condor]

Looking forward to seeing your next chart & thougths on the US500  today has been a real interesting day in the build up to the NFP and after.  Its been the first time I've watched such an event and followed it with interest across FTSE/US500/US Crude/Russell2000/DAX.

[Mercury]

True enough Condor, interesting is one way of putting it.  The Chinese have a curse, "may you live in interesting times" and in terms of the markets we certainly are and it is something of a curse for traders but also an opportunity if we can read the tea leaves correctly.  On which subject:

 

I have recently see several long time market pundits on trading contradict themselves by turning suddenly bullish after an extended bout of bearish predictions.  I am heartened that even these old times are getting mixed messages from the market and finding it difficult to fix on a scenario.  All I can do is go with what I feel fits best until the evidence tells me otherwise and I remain resolutely bearish.  A breach of early November 2015 highs would change things and I would start to move if certain resistance lines on Dow and S&P500 are breached (we are getting close to this).  Therefore caution and prudence (money management and stop placement) is the order of the day but so is confidence in placing trades.

 

Looking again at my 3 screen systems and using the S&P500 as my principle guide I see the following:

 

On the Weekly chart 2 options remain in play as follows:

1. Short drop, maybe to the 38% Fib then on to higher highs
2. Deeper drop, maybe to 62% then the drop begins

Scenario 2 is more complicated that that with a few internal options but let's ignore that for now.  The thing that strikes me is that both scenarios suggest a decent drop is imminent.  While one can't totally discount a massive surge up from here it seems unlikely to me, this isn't a Wave 3 after all...  I have a strong resistance tramline that caps tomorrow at about 2080 and this is also the Fib 88% from thee Nov 2015 high (see daily chart orange line).

 

On the Daily I have a possible A-B-C with 1-5 completing at the 88% Fib and tramline resistance on both Weekly and Daily charts.  Stochastic and RSI are both overbought and have been for some time (can't keep going with out at lease a retrace).  As an alternative there is a scenario that gets us to 2100 and a strong line of resistance and this is at the 88% Fib from the May 2015 highs (which would suggests the higher high scenario).

 

On the Hourly I have a potential ending triangle formation with he upper line making a junction with both the Daily down-sloping tram and the 88% Fib with a correct 1-5 wave count on the current wave up.  Add to that Neg Mom Div building (not yet complete) and over bought Stochastic and RSI and a turn down of some sort if indicated.

 

Interestingly the pundits are now already second guessing their turn to bullish scenario, hedging their bets by suggesting a retrace drop is indicated even in the bullish scenario (which it is).

 

How I'm playing this set up is to take shorts when the price hits the upper triangle near the 88% Fib with close stops to guard against the 2100 scenario and then moving to B/E quickly once I see a drop.  Alternatively, wait for a drop in 1-5 followed by an A-B-C retrace and turn but the risk it this could fall away quickly when it goes.

 

PS: The Russell2000 has 3 touches and rebounds on the 50% Fib from the June 2015 all time highs.  If Monday sees this drop away then the Russell could lead the rest of the market down.

 

Here are the charts:



[Guest Condor]

Thanks for your update - I've upped my bearish position slightly on the +20points up moments of the FTSE this morning (this bearish position represents a hedge to my have and hold portfolio).

 

Re the S&P I'm sticking to my Bearish view on the May/June/Sept Option Puts I have in place, albeit I have have added some out of the money Calls up at 2110 which were cheap and will produce a profit on an upswing (if it occurs, the inexorable rise scenario or the swing up) before the (big?) break down anticipated.  I'm looking to Swing trade (which is your strategy) in addition to my set positions on the US500 and maybe the Russell 2000 too if the signals look clear.

Yes the chinese have great proverbs and I'm hoping to monetise these interesting times with the appropriate stops to prevent any nasty outcomes....we'll keep an eye on those tea leaves closely

[Guest Rich88]

Dow futures are pulling back this morning, but is this just a correction to overboughtness or the start of downward play? Oil is holding at 36 resistance. For now anyway!

[Mercury]

 Hi Rich88,

 

That is the 64mil question alright and it also depends on what you mean by a correction?  Given the strength of the rally (which could itself be a correction - the mind boggles...) any correction is likely to be significant (1000 points or more even) so for right now it probably doesn't matter much whether we think it is a correction or a major turn.  The only naysayers to this would be those who think the rally has not yet ended, and you can never be 100% sure of these things either way at this early stage.  I take confidence in my view that the rally is over by looking at the bearishness on all markets except for the US.

 

I do think there will be a push back up by the last remaining Bulls in an EW1-2 formation and then this Bear phase can really get underway.  If we do see this EW1-2 on the US then expect a sizable drop in terms of pointage.  The trick is to spot your entries and go in with confidence BUT guard against the possibility of another high on the US with sensibly placed stops.  virtually zero change of a fresh high on FTSE and Dax at this juncture unless something pretty dramatic happens (famous last words?)

[Mercury]

Can't help feeling this US opening rally is not set to last. For those of you of an Elliot Wave bent I have a 1-3 count on the move down so would expect a 4-5 to complete a full wave 1 and THEN we should get a strong retrace rally. 

[Guest Rich88]

2048 support still holding up on spx

[Guest Condor]

Yes it's quite annoying! If only it would collapse the the fun would really start

[Guest Rich88]

Like I said to mercury before April is a sessionaly bullish month. If the markets continue to chop then we could be sizing up for a decent sell in may?

[Guest Condor]

Testing 2048 again as I write this - yes spotted you'd pointed out the historical April Bullish tendency - maybe this year will be different and break the trend so we can say hello to 2020 or will it continue?  Interesting times - good to bounce stuff around on the community - glad IG added.

[Mercury]

US futures have turned bearish, how long can the FTSE resist this and the Dax and Oil turning bearish too?

 

FOMC later today is a pain, maybe a drop to that followed by a rally on the US to complete an EW1-2 and then things get interesting?

[Mercury]

I'm targeting 17500 (Dow) and 2035 (S&P) to end this move down and begin a retrace back up.  That would result in a nice 1-5 down turning at the Fib 76% from the 24 Mar low.  Dax might make 9400 region but the FTSE is acting strangely in the sense that it is too bullish.  If Oil breaks down FTSE may diverge from the rest?

 

I expect this final move down to be slow and jagged and I'm sure FOMC will have some impact (maybe trigger the turn?).

 

Anyone got anything else on this?

[Guest JoshM]

Dow breaking head and shoulders neckline at 17572. Strong closed candle could see a sharp leg lower. Like you're saying, it could just be a short term thing given the uptrend of late, but 17400 is the next major swing low to look for. H&S target is at 17284.

 

 



[Guest Rich88]

I went long SP500 at 2048 last night. I don't want to hold this trade to long though..!

[Mercury]

Hi Josh,

 

Like the neckline but it hasn't been sustainably broken (i.e. can go back up and down from here and still retain valid neckline.  Check S&P500 and you will see this more clearly (see below).  I fancy the market will rise to touch my blue tramline (comes from the 2 hour chart) in a second kiss and then we will get a sustained break of the neckline.  This would constitute a EW1-2 in my book and then we are on for a significant drop.  This could all happen this evening with FOMC.

 

It's getting interesting!

 

Charts:

 



[Guest JoshM]

Yep, never advisable to open positions ahead of big fundi releases. Definitely need a proper break. An hourly or 4-hour close below 17564 was needed, but didnt happen. Shows the importance of waiting for confirmation!

[Mercury]

Yeah but still good to project forward.  Personally I prefer to draw H&S on the Daily charts, on the hourly I have less trust in them.

[Mercury]

BTW, if you draw a neckline on the FTSE100 Daily you get an interesting result (see post on FTSE thread)

[Mercury]

Nice 2nd Kiss bounce off my blue tramline plus 50% Fib (could be a EW1-2 completed).  Let's see if it holds and if we get a break of that neckline.