US Indices Short - the big one!

[Mercury]

Feeding from post on the "Great Bear is Upon Us" thread, where I posted the Daily chart for the Dow in the run up to Dec 2007 and the comparison to today's price action I now have a turn at the wave 2 (blue) point previously identified, which is a lower high than the 8 Nov high (it the turn and drop holds of course).  The case for the top already being in is already made but just to briefly reprise (weekly chart below):

• The EWT count is credible for a Wave 5 completion (and super cycle wave 5 completion) at the Oct top
• The Oct top is an effective double top with the Jan top, just a bit higher, which is similar to 2007
• The bearish move down to late Oct/early Nov is consistent with a 1-5 motive wave, which is suggestive of a trend change (unconfirmed)
• The rally back up to Nov 8 is an A-B-C form, which turned on the Fib 76% (very high but consistent with a counter trend rally).  This adds to the notion of a trend change
• Now we have a lower high rally ending on a gap, which is about to be filled - over exuberance in a last gasp?
• There is NMD at the Oct top (and additionally divergence in other oscillators, which were all overbought on the weekly chart and not yet oversold - more to go in the Bear, phase 1!)
• The pattern is consistent with 2007, doesn't have to be but doesn't hurt...
• The volatility of the whole of the 2018 price action is suggestive of an ending pattern as bulls and bears slug it out.  This means that the Bear camp is growing in numbers and power.
• The recent rallies are too strong.  What I mean by this is that normally rallies build slowly at first if they are going to have staying power, this one burst out too quickly, expending all it's momentum and now may not have any more drive.  For this current rally to have staying power it would be signaling a massive Bullish phase to come (from an EWT perspective).  So I find myself having to either remain Bearish or seek a 5000+ point rally.  I just can't get with the latter on a Fundamentals perspective (yet!).

So where are we now?  The charts below show the Oct Top on the Weekly and the pattern I have discussed before on the Daily, including the turn at wave 2 (blue).  The Daily and Hourly charts shows the turn close up, which was on the Fib 88% (I have noted that recently we have seen a lot of 88% and double top/bottom retraces as things get volatile.  On the Daily Stochastic is over bought again, which often happens at a retrace end.  On the hourly, I have a set of channel lines, just broken this morning and being retested (however similar channels are not yet broken on other US markets).  I have a credible EWT count for a retrace on the rally to yesterdays turn (albeit very powerful, almost straight up..!).  Alas I do not have NMD, which I would ideally like but may not get owing to the strength of the rally, however this means I cannot yet rule out another leg up.  The Gap is not yet closed, nor on other US markets.

In summary then this is not ticking all my boxes but is a credible set up for me so long as other indices are aligning.  And boy is the Nikkei aligning...  I also have Gold and Silver rallying as projected, although that may have more to do with the USD at present.  The USD bearishness is the only nagging doubt, however if you look at 2007 you will see that USD (DX) did continue down for a few months as the 2007 bear started and only rallied when the market realised the game was up on stocks, so perhaps this is also aligned...

In the final analysis, in trading, you have to take a chance.  The point of technical analysis is to help identify big picture turns and trends (together with Fundamentals) and to identify higher probability that 50/50 trading points.  After that it is in the lap of the gods so good money management is required.  If this works out the the Dow could offer 5000+ points Short in the first phase.  This would dwarf any other set up (including Bitcoin and it's ilk) in my view.

 

[Mercury]

All the Gaps are now closed (inc. the Russell 2000).  The big 2 US large caps have all broken short term supporting trend-lines with a quickening bearish move.  And USD is rallying.

At the risk of tempting fate here (but what's life without a little risk!), in the words of Steve Eisman, Boom!

[Mercury]

So that was fun!  The price action hammered down offering a nice bucket of points for anyone who went short at the Fib 88% turn and/or the channel breakout.  The swift drop meant I could move stops to break even and pyramid the move and then we got a relatively small relief rally as (I assume) the buy-the-dips trend followers stayed loyal to their approach.  But that move was repulsed by the Bears in the latter part of Friday as the drop resumed.  A little rally at the rail end of the day was the only spoiler on an otherwise perfect run for Bears.

So far so good but what happens when the markets open up on Sunday evening.  I have a feeling we might just see a gap down!  Why?  Well the US markets (at least the Dow and SP500) have arrived at key support but not yet penetrated.  The Nasdaq has been a bit more bouyant and still has a ways to go yet to get there BUT the FTSE100 and Dax have both broken through key resistance late last week and both the Nikkei and SP500 have made fresh lower lows, which negates all the rally scenarios I had (also the Russell 2000).  So for me the trend has indeed changed to a bearish one, time will tell if this is indeed the big one, we will need to see how it plays out, I have posted my long term bear road map before.  We could see another small 1-2 retrace before a penetration drop but either way a drop seems much more likely and once the US large caps join the rest of the world indices, well the Bull is surely slaughtered...

[Mercury]

Price on all the US large caps has now made a lower low (Nasdaq did it in late November - still leading the way...) and the Russell 2000 has also made a lower low.  Dax and FTSE have as well but are on different tracks so this is less significant (the Dax lower low was in early Oct!!!  Even further ahead of the Nasdaq!).  Anyway the point is I am no longer making a case for the all time high being in and the market turning into a long term Bear, this is now a done deal for me.

Some Bulls will be thinking Santa Claus as a result of recent rallies, they will be disappointed (or worse!).  It is just a relief rally before the plunge (see charts below).

Cartoon courtesy of Hedgeye.com

On my Daily chart you can see the whole of 2018, as posted before.  Crucially we now have that lower low and a series of lower highs.  We got a fakeout through the potential neckline support and pin bar to kick off the current rally but the wave 1 (pink) bottom support has been breached (hence the lower low).  The current rally is conforming to an A-B-C pattern and, if correct, this should top out around the Fib 62% level (no 76 or 88% this time!).  A turn a drop here will be fast and furious and I will be looking for a breach of the previous wave 4 (pink) support levels from early Feb 2018.  I will also be looking to see correlated moves across all the major indices, especially perhaps the Nikkei, which is the only one (at least of the ones I track) that has yet to make an equivalent lower low.

 

[Mercury]

Looks like an even earlier turn than I thought is in the offing...  Nasdaq and Nikkei made Fib 50% and have now broken out of a Triangle formation (or are in the process of in the case of the latter).  Other markets have also posted turns but at lower levels (the FTSE100 did hit the Fib 50% but on a different path than the US markets).  I am looking for a new lower low to confirm but the turn certainly appears on and if it is confirmed then it was a weak retrace rally, which is Bearish for me after so many Fib 76% and 88% rallies thus far in this move since end Oct fall.

[Mercury]

Yesterday was a day of Bull/Bear tug or war, hard on the nerves but ultimately the Bulls were sent packing by the Asian markets overnight.  The writing was in the charts on this, for me, supported by price action.  On my hourly Dow chart you can see a retrace to the Fib 38% area as mentioned in the previous post as a possible turning point.  It turned but then there was a lot of push back as you can see from the chart with a series of 3 pin bars before the Bulls eventually capitulated.  I have a Triangle breakout and retest off the Wave 2 turning point (but note a larger scale A-B-C cannot yet be ruled out - i.e. the Wave 2 Green could be a wave A (red)).  That is the only point of caution for me at present, otherwise the set up us pure bearish.  I have a reverse direction triangle also broken through.

We now come to a critical point with a retest of the Daily neckline support (blue line).  Price has paused here several times of late and it has provided support over the past year.  The recent fakeout and now retest could be seen as a Bearish warning signal.  I will want to see a firm break through of this support zone and ultimately a break of the lower major support zone (which would be another lower low) for this Bearish move to really get going.  If we do see this there will be no stopping this Bear until at least the 20000 level (remember markets move in zig/zags so sell the rallies will be the order of the next month or so for me if we get that breakout.  I see similar set ups in all major indices, especially the US large caps and the Nikkei.

[Mercury]

First Support broken with a candle close below on the hourly.  Might get a retest but set fair to test the second support.

 

For the avoidance of doubt, I am SHORT SHORT SHORT and have been for a while now.

[Mercury]

You didn't have to be a short term trader to trade both ways since Oct.  The signals were there to swing trade, a months swing is not short term to me.  Having said that, being of a Bearish bias, my sights were set firmly on finding the right long term early entry.  This is important for my trading style as I use the early entries, stop protected at break-even to leverage further trades lower down at slightly wider stops.  So long as I am net no loss and price actions is following my road map scenario I am comfortable.  All my shorts are now break-even and will remain so (one of my cast iron rules is to never, ever move a stop back from an advancing market).  If I get stopped out so be it I will then look for another entry.  This means I now trade this market(s) (I am short Dow, Nasdaq and Nikkei) from a low risk position with profits in my account (unrealised).  Thus any new Short is my only risk and is therefore a stand alone trade from a risk perspective.  I only use spread betting for trading indices etc.  CFDs I find better for pseudo investing in individual stocks.  For pure betting on indices and commodities spread betting is the way to go.

[Mercury]

After the action of the past few weeks it is time for me to look at the long term charts again to check where we are.  The Weekly chart on the Dow makes for interesting reading.  I wont reprise my analysis of the market top out, except to point out that IF we have a head & shoulders top then the neckline has been broken on the Weekly chart this past week.  Even if the H&S is not valid the line is still a supporting trend-line on the Daily chart so the breakout is a valid Bearish price action.  Next up is an ice line off the Wave 4 bottom (23,000), which may produce a short period of consolidation pre or post before this Bearish move concludes with a bang all the way down to key support around the 19,000-20,000 area, probably concluding with a strong Bullish pin bar that sets up a retrace rally before the massive wave 3 Bear gets going.

On the Daily chart you can also see the supporting trend line breakout after a large gap up was closed quickly (very Bearish) and hammered down to conclude with a fakeout on that trend line.  Crucially this produced a lower low and then the retrace only made it to the Fib 38% with 3 pin bar failed tests of the Fib 38% zone (very Bearish in the context of the 2 previous rallies).  Looking at the 4 Hour chart you can see the Fib 38% retrace and subsequent drop.  I have a small 1-2 (brown) and then a consistent bear move.  We may see a short period of consolidation, either as a retest of the neckline or a break and retest of the wave 1 (green) support zone before the market drops through to the key ice line support at 23,000.  Either way the key signal here is a new lower low, which would be very Bearish and the a beak of the Ice line is game over for the Bull.

My strategy now is simple, sell into the rallies and keep moving stops to break-even as the Bear move plays out BUT watch out for consolidation Flags, they can both trap Shorts but also offer great opportunity for new Shorts.

 

[Mercury]

The Dow has now broken through the next line of support below the H&S neckline following a brief retest of the neckline breakout zone, as noted in the last post as a possibility.  There were several good Short opportunities today to add to the haul since the wave (2 blue) turn.  Crucially we have another lower low through key support.  Next up is the important Ice Line support on the 6 Feb 2018 wave 4 turn.  However, it is important to look at other markets to check correlations.  On the S&P500 (the biggest and most important in the world) price has made a brief visit below the Ice-Line at the close today.  Not a close below so not yet a confirmed break but it is a significant signpost that the Bear is truly on.  A confirmed break of this S&P500 critical level will surely herald the end of the Central Bank Bull.  We are likely to get a fast move down once the break occurs on the rest of the US markets and the Nikkei (might well happen overnight in the Asian session) until we his a period of consolidation (maybe over the Christmas break) and then we should see the final stage of the initial bearish wave 1.

[Mercury]

Looks to me like another retrace in play at present.  Since the 3 Dec top and turn we have seen a steady Bearish trend, yet is is amazing to note that currently the IG sentiment indicator is at 65% Long for the Dow (albeit down from 72% at last nights close), read into that what you will.  This trend has played out in a series of 2 1-5 waves with one A-B-C and now the market looks like it is throwing in another A-B-C, after which a significant drop would be in the cards.  You can see the above move in previous posts (Daily charts) on this thread.  The Hourly chart below shows the most recent 1-5 down to 1 (brown).  I am currently targeting a completion of the A-B-C retrace to wave 2 (brown) at about the Fib 38%, which would be a retest of key support/Resistance break coterminous with the prior wave 1 (green) termination.  Have to watch out for the Fib 50% just above thought and I would be highly skeptical (at present) of a break back through the neckline (blue line), which is my line in the sand for the current Bearish showing.

I have very similar set ups in the SP500 and Nasdaq so will be looking for all of them to hit and turn at their respective critical points to add to my current haul of Shorts.  A break back down and through lower support at the wave 1 turning point would be very Bearish.  This would most likely clear out the remaining buy-the-dips traders and result in a sentiment swing that would carry the market down heavily and fast.  Fed rate decision could be the spark for this move, let's see...

 

[Mercury]

Right on cue the Dow (and all other indices too) turned at the Fib 38% zone and plummeted as the Fed made it latest proclamation.  I'm sure journos will be scrambling to make sense of it after the fact but the bottom line is sentiment has been turning since October highs and anything triggers a sell off, especially now the markets have breached key support levels.  The SP500 has closed below the prior wave 4 ice line on the third attempt (third time is a charm!).  Next stop is the rising Weekly trendline and the Monthly chart Fib 23% (around 2260).  We should see the Dow, Nasdaq and Nikkei join the SP500 below their respective ice lines to complete the set (Dax, FTSE and Russell are already there).  The only question in my mind now is how far it will run down before a retrace to set up the big wave 3 drop?

[Mercury]

With breaks of ice lines and red ink everywhere it is easy to get into full Bearish mode and throw caution to the wind, especially if you have missed out so far.  Markets do not go in straight lines (at least not until a mega crash but we are not anywhere near that yet).  After a series of moves in the right direction I start to look for reversals for two reasons:

1. to safe guard any positions I have
2. to take profits where appropriate

Given the sharp bounce at the end of the US session and follow on out of hours and now on Japanese open I was wondering if we could get a more sustained retrace (or relief) rally for a while.  I am using the Nasdaq for this exercise because it is the most buoyant and prone to exuberance (the Tech believers will not give up the dream easily...).   Also the Nasdaq hit and bounced off its ice line (Support at the previous wave 4 turn on 9 Feb 2018).

The same series of lower highs and lower lows is evident on the Nasdaq Daily chart as on the Dow and SP500.  Incidentally, for those of you of a moving average bent, a Death Cross has occurred (where the MA 50 cuts the MA200), which is a Bearish signal in this case.  The bounce off the Ice line is in a pin bar price action form.  There is strong resistance above in the zone where both the wave 1s (blue and green) occurred before the recent break through.

It is on the hourly chart where things get interesting though as any retrace will, I believe, be short term.  Here we can see the whole move down from the Green 2, which can be described as a 1-5 with strong PMD at the end of today's session.  I would not be surprised to see the market rally to the Pennant breakout zone or a bit above (Fib 50% and key resistance zone) before returning to the Bearish trend.  I can see a similar set up on the Nikkei (also attached), which also bounced off its ice line today and Dow/SP500 are also similar.  The Asia session should shed a bit more light on whether this relief rally is on the cards or not.

 

  

[Mercury]

We did indeed see a short rally (A-B-C form) on the US markets but it turned out to be very shallow, ending sharply with a pin bar on the Dow and the Fib 23% (very weak rally, very Bearish form).  This retrace completes a break and retest of the Ice Line support/resistance - the zone coincident with the wave 4 turn on the previous major rally - see weekly chart below to see the Ice line).  It also completes a 1-5 down to wave 1 (brown) so with that and both a confirmed break of the Ice line and further lower low and a 1-2 retrace done we should see a sustained bearish move.  The only thing to watch out for now is a Flag/Pennant consolidation (Daily chart level), which typically occurs at about half way along the entire move and is therefore a useful indicator of where the end of this Bearish move will occur. 

The Short term outlook therefore is for a continued Bear market (with only a Flag to negotiate, which should not breach the Ice Line).  The Flag should give us a clue about where the move may end, there are several possibilities (marked on my Weekly Chart but we will have to monitor price action to get more clues).  Medium term I will be looking for a big picture EWT 1-2 retrace, Fib 50% or 62% are favourites but we will have to wait and see where the current Bear move ends before thinking about this too much, except to be prepared for the reversal.  It is easy to get drawn into a Bearish frame of mind and forget that markets move in waves or zigzags.

My trading strategy:

• Continue to sell into any rallies (this may start to be intraday as the Bear picks up pace) and move stops to break even quickly to guard against the forthcoming consolidation phase, which may look like a rally or could be a so-called Flat (sideways price action).  I do not expect it to last very long, a week or so maybe and could very well occur during the Christmas and New Year holiday period, in which case a Flat could very well emerge.
• Once I see the consolidation Flag complete and break lower there will be a sustained Bearish period to the end of this move, which is likely to offer very few retraces so intraday rally selling will be the mechanism to add to Shorts, again moving stops quickly as the market proceeds down.
• Assess for the likely end of the move and cash all Shorts below the Ice line at a minimum and potentially look to swing Long if the opportunity presents itself.
• A key decision will be whether to cash all Shorts, even those above the Ice line and seek to leverage profits into fresh Shorts when the retrace ends and turns back into the very big wave 3 Bear.  Not sure what is best here, likely to cash some and keep a few from the very top for live leverage.

 

[247trader]

Interesting read thanks. My 2 cent / question.

 

[Stewart]

Mercury . You have had a great call early on this one so hope you covered on the way down testing that 21600 support level. As you pointed out in an earlier post , markets hardly ever go down in a straight line without some retracement and Portfolio managers had larger cash holdings on their books which they often don't want to show in their year end statements so may be putting some of that to work along with the Algo action . 

 It feels to me like we can grind back up through 24000 and maybe some more in a short squeeze over year end before getting better entry points to play the larger move testing 19000 into the first quarter. What do your charts suggest given the recent price action now? 

Thanks for your posts.

[Mercury]

Funny you should mention that @Stewart, I was taking the Christmas period off trading, it is usually a tricky time to trade but was keeping a watching brief as the market approached a key supporting trend-line on the SP500.  While I was leaning towards a stronger initial wave 1 there was also a very credible scenario that called for a bounce off this trend-line coincident with a 20% drop level from the top of the market.  That is exactly what we seem to be getting.  Incidentally this is also exactly mapping to the 2007 pattern, which was one of my guiding scenarios (posted previously elsewhere).  My SP500 Chart (see below) shows this bounce and a rally that is, in my opinion, too strong to be a simple in-trend retrace.  At the very beginning I indicated a large time frame wave 1-2 retrace was my lead scenario and for this to begin at the 20% drop mark is exactly on track for me.  I now anticipate that retrace in A-B-C form, which could take any form so the one I outline is just indicative of a fairly volatile period where traders could experience a lot of whiplash so caution (or steering clear until finished) is the order of the day (well next 4-5 months I am guessing).  Such a relief rally on stocks may be the prompt USD needs to perform the Bearish retrace I have been tracking and it will be interesting to see how precious metals respond (stick with USD or follow stocks inversely?).

I also show the the Dow Daily to mix it up.  In both cases I will be tracking the retrace rally to see if it retests the respective necklines, which should occur around the Fib 62% I am guessing (early days).  However I will want to see the Wave A terminate around about the Fib 50% to have confidence in that termination projection.  Once it does terminate then "the Big One" will really be on in either a wave 3 of 5 or wave C of a massive A-B-C correction, but that's for another time.

My trading strategy:

1. To answer @stewart's question, my latter Shorts were all exited for a net profit,once I realised this wasn't a sell the rallies situation, and I retain all my Shorts above the Neckline to provide leverage for the next wave down.  I have stopped selling into the rallies.
2. I will probably not trade stocks until the termination of the retrace, if it does transpire that this is the right call, as I prefer to be Short stocks and I want to avoid that whiplash.  Maybe a long off the Wave B if I can spot it but it is hard to do.
3. Therefore I will focus on FX for a while and let stocks play out, maybe I'll see if Oil decides to follow stocks in that rally I have been searching for.
4. I will be sitting on my precious metal Longs stop protected and wait and see what happens with these markets.  Again I don't want to be Short precious metals so I would look to buy the dips on these markets, leveraging my early Longs.  This and my Stock shorts being very early entries provide the perfect basis for leveraged pyramiding once the next waves get going.  So for me it is all about spotting when the retraces complete.  I think we will see retraces across the board for a period of time.

[Stewart]

@MercuryThanks for the response. Looking at your charts this suggests either one touch at 24200 level or two touches depending on the news before the next move down. It seems pension funds have been buying off the lows and Algo's covering which explains the weight of the buying. As you write, 20% was a large selloff through December and people got a bit too bearish there on the flat yield curve idea so a decent bounce is expected.

  I guess the upside surprise may well be the best Central Bank in the World (China's) starts stimulating growth again after recent weak numbers which creates a bigger move higher and dampens down World growth fears. This could create a more bullish scenario for growth , commodities, steeper UST yield curves and a bullish recovery for stocks. If they are slow to react we could get this deeper selloff into the 19000 area and then recover for another Trump style rally to new highs. It's going to be a volatile year either way. 

[Mercury]

You could be right of course @Stewart and many a perma-bull, "this time it's different", would be cheering you on.  However personally I believe that central banks don't have any ammo left and in fact I will be betting that if they do turn the printing machines back on after the largest Dovish period ever (I think) with little of real economic growth to show for it they will in effect be saying that the game is up and markets are more likely to be spooked than calmed.  I think recession is inevitable, I don't thing we really had a proper one, or at least the one needed to effect corporate Darwinism, in 2007-8.  The only question in my mind i whether it will actually be deflationary, which I believe is necessary to prompt debt forgivenness - the only way the huge levels of debt can possibly be addressed.  The idea of inflating this debt away is total BS, the level of inflation necessary would be catastrophic.  The central bankers Keynesian based policies are defunct, long live the Austrian!  Either way this plays out, buy Gold (yeah forget about Bitcoin et al, not this time, maybe next)!

For me the game is already up but I will wait to see price action move to confirm with a turn at the appropriate point, according to my road map and not worry too much about what the MSM are reporting...

[phillo]

sometime ago I posted a chart of the Dow Jones ( I have posted it again here) stating that the highs & lows were made outside normal US trading hours. I always feel that the Americans will ultimately try & put in the highs & lows in "their" time & eventually they did.

The reason I bring this up, is the recent low was again made outside US trading hours ( yellow box )  & therefore I believe it will ultimately have to be tested. This doesn't mean anytime soon, the current market seems to be bouncing up.

Also I look for gaps to be filled & for the bears amongst us, I think there's still one way down.

Also I noted a great comment on twitter "  If this was the most hated Bull Market in history, this must be the most loved pullback ever! "

[Mercury]

Interesting times on the Stock indices!  But interesting times brings opportunity as well as risk, that is the game after all.  After I cashed out all my Shorts over Christmas, bar a few above the Fib 62% from the top of the market, I switched from full Bearish trading to swing trading as I was/am anticipating a period of consolidation retrace.  If we do see this I think it is likely to be manifest as a so-called complex retrace with many volatile reversals and lots of whipsaw risk.  We have seen a bit of this already since Boxing day and the price action overall is following my road map almost perfectly with a sharp rally off the LT Bearish wave 1 (purple) followed by a shallow retrace (only to the Fib 38%, bullish) followed by a sharp rally away to make a higher high.

Of course I am mindful of 2 alternative scenarios to my lead one (as posted previously on this thread) as follows:

1. The Wave 1 Purple isn't Bearish but yet another massive buy the dip preparatory to a long haul up to fresh all time highs 1.5 years or so from now.  This is the Economists consensus, which is one reason I don't buy it but can't say 100% it will not happen.  Even in this scenario I would not expect a massive fast rally at this point but a long drawn out grind.
2. The retrace is a simple A-B-C rather than a complex one and happens faster.  I think this is more likely than the scenario that the Bull is back on but less likely than the complex retrace because I suspect there are sufficient traders who are still buying the dips and want to believe the Bull ride isn't over yet, want to believe that a 20% drop is a "healthy correction" (talk about an oxymoron!).

My approach, as always, is to watch price action against my road maps and trade accordingly.  I am currently Long off the Fib 38% turn (also on Nasdaq) but if this is a complex retrace it will run in a series of A-B-C waves with some serious whipsaw reversals so I am mindful that we may get a whip back down soon prior to a fast run up to the Fib 50% resistance zone where we should see a large scale wave A (Pink) turn back down.  Any Shorts here need to remain stop protected above the high as a whipsaw back to a near double top is quite likely on what could be a chaotic wave B (I definitely would avoid any notion of pyramiding this wave B, which is likely to end like the Wave 1 (purple) with a strong pin bar spike and reversal.  After that we should see a rally that will take a few months to make a higher high Wave C (I am targeting the Fib 62% for now).  Again this move is likely to contain a lot of whipsaw as the Bull/Bear prize fight reaches the final rounds.  I predict that the Bears will win and precipitate the biggest Shorting opportunity I am likely to see in my lifetime...  Admittedly this is one I have been chasing for a few years now but as someone once said, say it enough times and you are bound to be right eventually...  If not this time then maybe next time.  If this time I plan to make out like a bandit!

[Mercury]

Nothing much to say on stocks except that price is still following my roadmap well.  I will not try to trade the Wave B unless we get a nice double top.  If I can spot the Wave B end I may go long for a while but for me the big one, the resumption of the Bear (the biggest of a generation, or maybe several), is worth waiting and conserving capital for.

[Mercury]

Yesterday the Dow rally was stopped at the Fib 50%.  Is this a turn or just a brief retrace before a further leg up?  Don't know.  However the case for a turn is strong as follows:

1. Turn at the Fib 50% - a typical retrace level only eclipsed by the 62% in commonality
2. Just under the possible H&S neckline and in the associate resistance zone from the previous break of this neckline
3. Plausible A-B-C, which could be the entire retrace of a wave A of a complex retrace pattern, I favour the latter but cannot rule out the former
4. Potential NMD with Stochastic in over bought territory
5. On the SP500 Daily chart we can see that the Fib 50% was not quite reached but the potential H&S neckline was plus there was a spinning top candle yesterday topping out with a test of that neckline
6. There is a credible 1-5 form to the wave C on the hourly chart, with a possible narrowing triangle channel in play, a breakout of which ought to signal a bearish move.
7. On the 1 hour chart, the current move down can be described as a 1-5. If we get a small A-B-C form retrace followed by a drop through the lower channel line then the turn will be confirmed for me. 

However we may yet see another leg up resulting in an actual test of the Fib 50% on SP500 (and Nasdaq) and a test of the neckline on the Dow before that Bearish move.  Short opportunities for me are a turn on a small retrace at suitable resistance levels and a breakout of the Triangle.

Note: at present my lead scenario is a complex retrace resulting is a lot of whiplash so caution is required with any trading during this period.  However I cannot rule out an alternative scenario that the is the end of the retrace already (a credible scenario) so if confirmed the market could resume the big Bear move from here (red line on Dow daily chart). 

 

[Mercury]

So the Dow did indeed take another rally leg up and broke the possible neckline, which is now rendered false for me.  However the Dow didn't quite make the Fib 62% and interestingly the Nasdaq is currently showing an almost perfect turn at its Fib 50%.  For me this means my original road map is still in play but so is a more straightforward retrace, which could be currently completing.  I have sketched these 2 our in the Dow Daily chart below.  On the Nasdaq the odds are still favouring a more complex retrace at present so I have only that one shown.  The price action over the next few weeks will shed more light, naturally.

For now I see a potential turn in process with an overshoot fakeout on the triangle channel; a breakout of that channel to the downside and a perfect failed retest (see both Dow and Nasdaq 1 hour charts).  There is NMD at both turns and a credible EWT 1-2 (1-2) price action.  If this proves true then we should see a bearish move off a lower high.

I am short on the retest of the Triangle breakout but will move to breakeven quickly after any bearish move with a lower low to secure against my complex retrace scenario and watch for reversals signals into a bullish phase.  Much as my Bearish bias would love to pile into the simple scenario I must remain cautions as a complex scenario will result in a volatile, whiplash, price action period that is very dangerous.

 

[Mercury]

Bit annoyed with myself today.  I failed to spot a price gap which was eventually closed on the Dow with a higher high on Friday.  Interestingly a similar gap on Nasdaq and Dax has also been closed but not on SP500, Nikkei nor FTSE100...  This suggests to me another Bullish period to the next resistance levels before the chance of a resumption of the Bear will come into question again.  And the FTSE is the most interesting one.

[Mercury]

Is the rally over?  Not sure but the US larger caps have been stopped at key resistance zones.  Take the SP500 for instance, really the bell weather index and important to analysis and watch whether you trade it or not.  Currently this market has been stopped at the Fib 62% (the most popular Fib for retrace turns).  What else?  Well there is a significantly weighty Neg Mom Div on the Daily and all shorter timeframes and a credible A-B-C EWT labeling.

What I cannot assess is whether this is a potential large scale Wave A termination or a wave 2 end, which would then result if the beginning of a major Bear wave 3.  Of course I also cannot rule out a longer rally but the indications are that a least a short term Bearish period is set to kick off and after all we have had a fairly strong bullish period since Boxing day... So we are due at least a correction back down.  I certainly would be hesitant about going Long a this juncture.

Other than a continuous rally to infinity and beyond (ha ha!) I see two plausible scenarios:

1. This is a Wave A so we should see a Bearish move to a wave B termination above the recent low and another rally to a Wave 2 end
2. This is the end of the retrace (wave 2 already) and the beginning of the big one!

On the negative side the Nikkei has yet to close its gap and FTSE/Dax could still have a bit to go to their critical turning zones.  We could see these indices do this on Monday with US indices treading water until their open and then all dropping.

My trading strategy is to chose safety first.  I have cashed all my tactical longs for a tidy profit and will await developments with a Bearish bias.

[Mercury]

With gaps all closed across main indices now and getting stopped at key resistance this looks like a credible trend turn.  If we see a short term retrace turn (lower high) and drop to lower lows (1 hour chart) that will confirm the trend change for me.  What I don't know is whether this could be a return to the big Bear or an interim stage (wave B) in a much longer retrace.   On the SP500 the last 2 weekly candles have poked through and returned below a possible Head & Shoulders Neckline in and around the Fib 62% line.  However a second test of a neckline is common enough so I cannot rule that out so 2 scenarios are in play for the Bears.  The Daily chart shows NMD at the current turning point and on the Hourly we have a 1-5 down and so far a partially completed A-B-C retrace.

[Mercury]

For some reason this didn't post over the weekend so here goes FWIW.

 

Will this rally never end?  It certainly seem like it wont and now commentators are calling for fresh all time highs and another few years or the Bull.  Bull something I say...  People are saying the trade is Long not Short, I couldn't be that certain either way myself...  We are getting gaps all over these markets at present and while the rally has been strong it is still following a normal pattern for a retrace.  Momentum is waning as a strong NMD emerges, again consistent with a retrace rather than a motive wave.  Previously I wrote on a FTSE100 Divergence leading me to believe that market would rally hard, which it did.  Now it is the turn of the Nasdaq, which is lagging behind the Dow and SP500.  Could it be that the Tech company bosses are not aligned to the other industries in terms of share buy back price engineering?  This is likely as they have never had to manipulate their shares to get over inflated pricing...  IF the only buyers are the corporates themselves, as some suggest, how long can that go on?

In technical terms all the major indices are at or near significant resistance points for me.  The Nasdaq has just blown past the Fb 62% and is now knocking on the door or the previous high, which was a long term channel line retest after the pre-Christmas significant break.  The rally is in a narrowing channel with strong NMD building.  This market is lagging SP500 and Dow and has not yet made higher highs, as with the other 2.

The Dow is also knocking on the door of the same previous high as the Nasdaq, on that at least there is correlation.  The same technical conditions as the Nasdaq exist for the Dow.  If we see a turn this week then the next question is whether that is the full retrace or just a Wave A of a much longer retrace that will run out to the early Summer at least?  Don't know of course, the Markets will reveal all in due course but I am leaning towards the latter.  Still I would be seeking to go Short on signals with tight stops as a placeholder and then read price action as any Bearish move develops.

[Mercury]

Dow looks like it could have made a rally top in or around the Fib78% and resistance zone with the previous turning point.  The narrowing channel supporting line has not yet been broken though so not conclusive yet.  However NMD is strong on both Daily and Hourly charts, resistance zone is strong and the EWT count fits either a wave A or a full retrace to wave 2 (time will tell which it is).  I will be looking for a breakout of the narrowing channel in the coming days if not tonight.

 

On the Nasdaq things are looking more Bearish.  Similar set up to the Dow and SP500 in terms of technicals but in this case the Narrowing channel has been broken through.

[Mercury]

Nasdaq took a second retest of the lower channel line and key retrace resistance of Fib 82% across all US majors.  The move so far is a near perfect A-B-C form with a strong drop away from resistance.  A new lower low will be significant but the final hours of Friday, if Bearish, will set up further falls next week.  Wouldn't want to be Long over the weekend.

I am short off the retest turn, Dow and Nasdaq.