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US Indices Short - the big one!

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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.

NASDAQ-Daily_170219.thumb.png.8b3bc534d2927edba45a5210a17a5bea.pngDJI-Daily_170219.thumb.png.0aef2f25a61f906c2882565ce7ecdaef.png

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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.

DJI-Daily_210219.thumb.png.5bc013a2768382aed4893812d8a28135.pngDJI-1-hour_210219.thumb.png.51946bac137590602157d844f1e69ba7.pngNASDAQ-Daily_210219.thumb.png.0f008923ab93b0898afade2ddfd57a00.pngNASDAQ-1-hour_210219.thumb.png.9e2447780c0185428eba7968acf8bac2.png

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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.

NASDAQ-1-hour_220219.thumb.png.b07c04b4355e013e1b26c499f4a06bf0.png

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Interesting week of price action.  SP500 and Nasdaq make higher highs to match the previous level of the Dow (Fib 88% zone) but the Dow itself makes a lower high.  FTSE100 & Dax make higher highs too but Nikkei and Russell 2000 have tracked similarly to the Dow.  All of the indices turned in key resistance zones as follows:

  1. Dow, SP500, Nasdaq - Fib 88%
  2. Russell 2000 at a resistance zone between Fibs
  3. FTSE 100 - Fib 62%
  4. Dax and Nikkei - Fib 50%

Obviously the US markets have been more optimistic/bullish/over-exuberant (delete as desired) than the others, and therefore offer the most volatility and therefore opportunity.

My long term outlook remains intact despite this US over exuberance and all 3 scenarios remain in play as follows (see Dow Daily chart below):

  1. Complex retrace as Bull/Bear slug-fest continues until the Bulls throw in the towel in early Summer
  2. Towel already thrown in but will still see a significant retrace before the critical support break into the Big Big Short
  3. A final leg up to a new all time high

I cannot tell whether 1 or 2 will emerge at present so will watch price action over the coming months with interest but the nature of the rally just ended suggests scenario 1 as the lead option, just.  For scenario 3 I would expect to see more of a sideways move than a sharp Bearish phase.

The technical picture (using the Dow but very similar in all major indices) is as follows:

  • Negative Momentum Divergence on the Daily at the Wave A(pink) or 2(Purple) highs
  • Clear area of significant resistance at the rally end (Fib 88%)
  • Significant pin bar price action at both rally end and EWT A-B end
  • Very strong bearish move away from the turn zones.
  • EWT A-B or 1-2 with a lower low (not yet on SP500 and Nasdaq) and smaller EWT1-2 with another lower low (see 4 hour chart also)
  • Oscillators turned back out of over bought, journey down to over sold indicated.
  • Russell 2000 made a lower low (others should follow into a short term A-B-C at least but likely to be a longer Bearish move).
  • In addition the Weekly Nasdaq chart shows a narrowing channel to the all time high (Oct 2018) and a break and retest of the lower channel line, the latter yesterday with a sharp bearish pin bar rebound off the failed retest.

Trading strategy:

  1. I am already Short off the first and second turns on the Dow and off the recent top out and turn on SP500 and Nasdaq - I am only trading US large caps as this offers the larger potential under either scenario 1 or 2 above.
  2. I am stop protected at break even on those early trades
  3. I will seek to sell into rallies of any reasonable retrace significance
  4. I will look for those retraces around channel breakout points (SP500 & Nasdaq) and off support zones.

 

DJI-Daily_230319.thumb.png.4ed2bb7f154568a775300e84acedc91b.pngDJI-4-hours_230319.thumb.png.f3876b415aa8915b29bda7354885653a.pngSPTRD-Daily_230319.thumb.png.a347f3129814a66b7a443e025364d02f.pngNASDAQ-Weekly_230319.thumb.png.16ff387d8bd5ce14c85cc5f2cb0e7488.pngNASDAQ-Daily_230319.thumb.png.496e06a78b66084b646f470fa798b803.pngRUSSELL-Daily_230319.thumb.png.ab4b0c95417067ae85603730f56c4852.pngFTSE100-Weekly_230319.thumb.png.041a86830230d7da8fd64c9802570afc.pngDAX-Weekly_230319.thumb.png.9b68050be0c5ae07176532e777ba4eb1.pngNIKKEI-Daily_230319.thumb.png.53227fbd2de3b469166b336e535e8f78.png

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Frustrating business this trading at times.  A strong Bearish move was almost totally reversed last week but not quite reversed.  Will it be?  The Bulls certainly think so but then that is all to the good for me, I always worry when the pack (and the MSM) align to my way of thinking too early.  For now, at least until past highs are broken, I am minded to expect a lower high reversal into a strong Bearish move, after a short continuation of last weeks bull into next week.

DJI-Daily_300319.thumb.png.227d73047669aa7c49136daeead91890.png

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Posted (edited)

DOW daily

Gap closing time?

 

DOW Apr.png

DOW Apr 2.png

Edited by Kodiak

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Certainly on the cards @Kodiak but the Nasdaq is exceptional bullish, to be expected in a tech led bull market I guess.  Price has stalled at key resistance levels (last chance saloon for Bears maybe (see my "are we there yet" thread).  However the jury remains out at present as US stocks teeter on the brink of either fresh all time highs or a significant bearish move.  One thing is for sure, the Bulls are not going "quietly into that good night".  

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