US Indices Short - the big one!

[Mercury]

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.

 

[Mercury]

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.

[Kodiak]

DOW daily

Gap closing time?

 

[Mercury]

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".