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Stock market turning points - are we there yet?

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Time is a problem @dmedin, no question.  It seems there are people on the forum who devote 100% of their working time to trading but most of us must juggle it with other things.  Frankly I am not one of those who even wants to be sitting in front of the charts all day, it would drive me nuts and it is only really necessary is you are trading very short time frame charts.  I did try it at first, mostly because I had no trust in a system, or the market for that matter.  Mostly I had no trust in myself and for good reason, I had not put in the work and taken the time to gain the experience.  And I lost and lost.  Where else would you see people diving into something they have no training and experience of and risking their hard earned capital.  "Down the dog" maybe...

But then I stopped and decided to take a different approach.  Everything I read led me to a simple conclusion.  Professional or retail it doesn't matter, if you are competing against the high frequency algo traders and prop traders you need to take a different approach.  It seemed to me that most, if not all, of the people who had been on this journey and successfully broke through the early days of losses and stumbling about and frustration and negativity did a few things in common as follows:

  1. Got a grip on themselves and the emotional part of their brain that was driving them to jump in at wrong times without a clear premise.  This is chiefly about controlling the fear of missing out syndrome and dreaming of another life.
  2. Took the time to study and develop a methodology for analysing, trading and managing their account in a professional business like manner.
  3. Changed the way they traded to few bigger better at longer time frames.

I am sure there are people on this forum who will disagree and tell you that you can make money on day-trading and scalping but if it doesn't suit you then don't do it.  It didn't suit me, I couldn't see the woods for the trees down at 5mins etc.  So I tried something else and it works much better for me.

When asked about his rules for investing Warren Buffett replied, "don't lose money".  It was a bit of a joke but there was a serious message there, the key is to limit losses and ride winners so as to max your profits.  In this way you don't need to worry about hit rates and pushing the 50/50 coin toss to 55/45 in your favour.  You just need to win big and lose small.  I will typically lose 8 out of 10 times but I scratch quickly if price action does not go according to my thesis and move stops to break even as soon as possible.  If on the 9th or 10th try I hit it then I am a net winner.  Trading is a long term activity.  The key to success is to be net ahead over a year not a day or a week.  You cannot think in terms of getting a regular income, it just doesn't work like that.  Also you have to take some profits when offered to keep your account ticking over or you risk running out of runway.

 

Regarding your point on wave recognition, it is a problem but it is the same for everyone, professional and retail alike.  It is called price discovery, the market participants watch the evolution of price and take into account other factors (like fundamentals)  and create a premise.  Then they test this premise by placing a trade.  This is simply how it works.  In terms of my specific comment, I really don't care at this point whether US large caps have just made a wave B or a wave 2 as the next wave in either case (C and 3 respectively) will be in the same direction, which is up.  I will assess the price action as the move develops and make decisions about when to cash and when to reverse later based on my analysis.  Deciding when to cash is where you want to be, not that it is much easier than anything else in trading...

EWT note: an A-B-C can look very similar to a 1-2-3 (or 5) so context is critical.

 

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Going back to my FTSE analysis I see things as follows:

  • 2 scenarios present themselves, other than fresh ATHs that is: 1) the move down to the turn on Thursday was a wave 1 (blue) off a larger scale wave 2 (purple) that should retrace, maybe in a complex fashion with a lot of whip saw price action maybe not, let's see; 2) the recent rally and drop to a new low was a 1-2 (red), which indicates a much stronger leg down is immanent.
  • The #2 scenario would only be valid if price holds below the previous high (circa 7300).  I favour the #1 scenario.
  • There was PMD on the 4H chart at wave 1 (blue), which suggests this is a turning point.  Also the 4H chart shows a 1-5 wave down to the 1 blue, which would be motive and suggests a trend change to the bearish side.
  • There was strong NMD at wave 2 (Purple) which is consistent with a large scale retrace move.
  • Just as with the US large caps, after the stop and turn up there was a sharp retrace drop to the Fib 76/78% zone before the current rally.  As the FTSE was in out of hours at the end of the week this market has not rallied as hard as the US markets.  Also we may yet see fresh ATHs on US large caps while the FTSE100 only puts in a counter trend rally.
  • If we do see fresh ATHs on US large caps and only a retrace on FTSE and probably Dax and Nikkei as well then comparing these markets will be instructive for calling that top on US large caps.  We may, alternatively, see only a retrace on US large caps too if the top of the market in already in.

Conclusion: we can anticipate a bullish period on all major indices BUT should guard against a quick reversal on FTSE 100 that would set up scenario #2.  Either way this market looks to have topped out so the coming months though to the Autumn will be critical to deciding things on all indices, and likely quite a few other markets.

I am Long the FTSE 100, coincident with my Dow Longs and will swing this up for now but my bearish bias for the long term will keep we watchful for a break down of this rally and I will not be pyramiding this one, far too risky until things are resolved.

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Could we be getting an interim A-B (brown) now that the probably initial A-B (green) is in?  This would suggest a complex retrace move that would mean the Bull has topped with the recent ATH.

A break through the current rally channel is in progress but it could morph into a small consolidation yet but for me the point is to watch the price action for ongoing clues as to whether we are there yet, which is the main topic of this thread after all...  If this does turn out to be a significant bearish phase then look for a higher low than the B/2 (green) but still quite deep a retrace as this would be more synonymous with a complex retrace up than a strong bullish move.

 As I mentioned before, in an end game scenario, whether this produces a new ATH or not, we would expect to see a lit of whip saw price action.  Let's see...

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Maybe a bit heretical given the rally yesterday, I'm sure Bulls are gearing up for a Green day BUT looks to me like we could be seeing a wave A (or 1) conclusion.  I have a solid supporting trend line on most main indices, which if broken would be indicative of a bearish move.  At present I am labeling this an A-B but lets see.  I also have a 1-5 up and NMD at the potential turning points.  With the high so close this represents a decent risk reward equation with low exposure for a tactical Short.

Thoughts anyone?

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"With the high so close this represents a decent risk reward equation with low exposure for a tactical Short."

 

I would wait, reason being Dow/SP/Nasdaq are seem to be gunning at least their 13th August highs.

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Looks like you were right about another leg up there @Badtrader234, well except for the Nasdaq and the FTSE of course, which is well bearish vs the others.

Right now I see the US large caps as having broken an uptrend and hit a short term support zone and in a temporary relief rally.  When resolved I expect these markets to break back down below that support level.

The NMD held for the markets that did another leg up and the channel breakout was swift and, in the case of the Nasdaq, strong.  The fact that the tech market did not follow the Dow up gave me confidence to get short both those markets.

Now I see 3 possible scenarios in play, other than a fast break back up through overhead resistance, after the relief rally concludes, as follows:

  1. Simple A-B (brown) contained within the larger A-B (green) to set up a wave C conclusion to the rally
  2. Wave B (green) was not correct, merely a wave A (red on Nasdaq 4H chart), recent top was a B and now we get a strong and fast wave C to complete wave B (Green) before a strong wave C rally
  3. The wave A (Green) was actually a wave 2 and the market hammers through previous lows and my lower channel line and the great bear is on

I favour scenario 2 at present but let's see how the price action does...  Note also the unclosed gap on both SP500 and Nasdaq.  This suggests that both of these levels should be closed before any rally.

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"well except for the Nasdaq and the FTSE of course, which is well bearish vs the others. "

Indeed, Nasdaq and FTSE both breached last Daily low while others didn't, from my limited  experience this sort of divergence can sometimes be a bear trap.

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Not this time so far, I am in any case Short off the breaks and stop protected at break even so no sweat of it blows back.  I expect US indices to drop harder while FTSE and Nikkei go slower now, they are both out of session.  Looks like we could be getting that 1-2 retrace turn about now, let's see...

 

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oops , I got the time frame wrong , it's 3 min.   Here's an update

Capture 3 min.PNG

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1 hour ago, elle said:

oops , I got the time frame wrong , it's 3 min.   Here's an update

Capture 3 min.PNG

Tap, tap, break .   Thank you :)

Capture ttp.PNG

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So stocks did indeed drop, despite a great bullish effort to stage a fight back yesterday. A while ago I suggested I was looking for a lot of whip saw action as a telltale signature of a Bull ending phase.  We are certainly getting that at present but there is a ways to go yet I think.  If the move down yesterday is to be a Wave B it must turn soon and whether we see fresh ATHs on US large Caps or a retrace turn remains to be seen but the more of this whip saw price action we get the more I will be thinking about the latter rather than the former.  And almost certainly this is true for non US large caps.

So I see 2 lead scenarios, other that either a rocket to the moon or an express elevator to hell when we open up again next week, as follows:

  1. A rally up to a wave 3 and then strong bearish drop to wave 4 that goes lower than the wave 1 high (that would be the mid Aug high (1rA green).  An ending channel in EWT can have an overlapping wave 1 wave 4, usually this is not valid but is is a signal of an ending phase.
  2. A continuation of a series of A-B-C moves that ends with a lower high top and turn - resulting in the mid July highs (later for SP 500 and Nasdaq) being the final top of the Bull

So either way we are set for a lot more whip saw, in fact this is important to see if you are seeking evidence of the end of the Bull.  The road map in my chart is simplified, showing the prevailing direction only and not all the twists and turns.  It will be hard to trade is my guess and will take much longer than my chart is showing to resolve, maybe well into the Autumn.  Personally I see better and safer trading opportunities elsewhere.  I might take a cheeky Long to stay interested.

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US 500  - Similar patterns ?

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US large caps seem to be following a complex (lots of whip saw price action) road map.  Still inclusive as yet but a potential A-B-C retrace (brown 1-2) could be done at the Fib 50%, similar on other indices.  Need a break of overhead resistance to confirm but it is looking promising for a bullish rally phase.  If stocks do rally I wonder what will happen to precious metals...  Will probably get a small 1-2 bearish retrace prior to any major rally, this could be a signal to watch out for.

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Posted (edited)

I can't see any 'pattern'.  I just see chaos and wild, random swings in price.  This is clearly a 'market' hostile to investment and geared up for manipulation by President ****-for-brains and his cronies.

Edited by dmedin

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Small 1-2 done, followed by the expected rally away.  Just need to see a break of the overhead resistance zone (previous Wave Aor1 green top) for the next phase to be confirmed, a wave 3 (possible wave C) off the wave Bor2 (Green) end and turn.  If it is to be a wave C it could still offer up some whip saw price action so care with stops is needed for me.  There is also a possibility of a strong wave 3 followed by a deep wave 4 that overlaps the wave 1 (blue) that is synonymous with an ending channel.  So unless this is a resumption of the never-ending bull story I am expecting more whip saw and difficult trading environment.  That said we may see a sharp move up to the ATH area and a slow consolidation dome top before a resolution without any further significant whip saw.  For me it is all about getting the signals as to whether we will see an end to the Bull soon or a break through to another strong rally. 

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2 minutes ago, Mercury said:

So unless this is a resumption of the never-ending bull story I am expecting more whip saw and difficult trading environment.

Never-ending growth is the prerequisite of capitalism.

This isn't a 'free market' that reaches 'equilibrium' through the agency of 'free contract'.

It's a heavily manipulated circus run by people who proudly call themselves 'financial engineers'.

Engineers are people who devise and create outcomes.

If the market falls, it's because it was engineered to do so (prime the pump).

But the story will always go back to a bull market, time and time again.

Because capitalism cannot existing without never-ending compounding growth.

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I agree that capitalism, in its current guise, requires never ending growth.  Well at least the capital markets do, I don't thing main street does.  For business owners, of which I am one, you need a means to make money for your family.  You need a product or service that customers want to buy/consume.  If you are better than the competition you succeed.  If not you don't.  Corporate Darwinism.

Financial markets and politically driven economic policy is where the problem lies.  We have discussed this before in another thread and I think we agree on it @dmedin.  The policies of New Labour are a good example.  Happy Clappy Tony open the doors of the UK to immigration on the mistaken premise that this would boost the population growth to make up for the fact that Brits were having fewer children.  The Brits, and most other Western economies are doing the sensible thing, albeit potentially driven more by self interest of Malthusian economics rather than altruism, in seeking worldwide population reduction.  This is the only way to ensure the survival of the planet.  But people like Blair are short term thinkers who only want to stay in power.  To do this they need to finance their crackpot policies and to do this they need a growing economy and for this they need an expanding population (or to compete successfully with their neighbours, which is one reason we are now seeing more "beggar thy neighbour" policies.

So all in all this results in a bloated financial system that is being propped up by central bank/government policy (don't make the mistake of thinking these are somehow separate, much less independent!).  In the end it will fail because it has to.  Malthusian theory say it must, not directly but as an extension of the resulting reduction in population, either through managed means of through catastrophic means, it is obvious that the financial system has to fall and be reconstructed on a more sound long term footing.  In seeking, even hoping for such a fall I and others who agree with me, are not seeking disaster but salvation and a credible future for our children, which right now I don't see, unless we get a grip of the real drivers of ecological degradation.  That is over population, which has only been possible due to extreme urbanisation, which has only been possible due to the kind of financial engineering you are talking about.

Where we disagree, if I am following your thinking correctly, is that you believe it will only fall when the "engineers" deem it the right time whereas I do not think they have any control over the fall at all and are fast losing control of the rise.

Net, buy Gold (and Silver) I mean actual metal not paper.

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Posted (edited)
On 02/03/2019 at 17:25, elle said:

Stock Market Turning Points, are we there yet  -      @Mercury, as the saying goes,  "saw this and thought of you "

Capture cad p.PNG

very good and in depth observation...

Edited by currentadierb

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Looks like the whip saw price action is set to continue if this mornings initial bearish direction is confirmed.  The turn was on the Fib 38% and is consistent with a complex retrace on the FTSE 100.  If correct we could see a drop down to something like the 7100 area for a wave B (brown) followed by a likely final wave C, although I wouldn't put it past this market to give us some whip saw on that final move too.

Similar set ups on the US large Caps and the Dax, albeit more complex perhaps on the US indices.  Here we could still see fresh ATHs OR a retrace to a lower low.  So far the price action is consistent with what I was suggesting would occur IF this was a trend turning end point.  Needs a bit more time to play out but again, watch out for that whip saw action...

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Potential channel breakout to the downside in the making on the FTSE 100, confirmed breakout follows the wave B scenario road map.

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FTSE 100 took another leg up and has turned just short of the Fib 50% and is now knocking on the door or a channel breakout.  This is a broader channel than the previous one and there is NMD at the turn.  Another leg up for a hit on the Fib 50% is always a possibility so need to see a solid break here to get Short.  Anticipate only a retrace to a wave B, maybe to 7100 level so not a major move.  However with Oil looking like a potential bearish move and these markets being correlated of late it could be a decent swing ahead of US NFP on Friday.

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Exact hit on the Fib 50% overnight as the Asian markets rally.  US large cap futures do likewise but now making a sharp about face.  FTSE100 is in the process of breaking down through the lower channel line after the Fib 50% hit and turn.  This is about as classic a set up as you can get but unlike the US large caps, where we have seen a lot of whipsaw price action, the FTSE rally is off a clean low in a clean 1-5 form so there is a strong likelihood that his is a wave A, with a B-C to a wave 2 to come.  If this plays out then the US large Caps will do something similar.

Wave Bs are hard to trade as they can follow any pattern and not for pyramiding.  I expect the retrace to be quite deep though so a decent, single trade move is on for swing traders.  The bigger trade will be catching the wave C rally and then of course the big one..?

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The FTSE 100 did indeed break out of its channel and then put in a decent retrace rally, that looks like a small scale A-B move to me.  I now expect this market to complete a wave C (brown) down to a larger wave B (green) and after that we should see a strong rally to complete the overall 1-2 retrace.

The Dax is behind and could be just about to break its equivalent channel.  As with the FTSE there is NMD at the recent top and a clean 1-5 EWT count on the move up to that top.

US large caps have all put in a top and an small 1-2 retrace rally against this.  Crucial here will be a lower low than the recent short term bottom and if Dax and FTSE do drop then similar is likewise on US markets prior to opening at least.  Price action on these indices will be instructive as to whether we have already seen the top of the Bull or will get another ATH.  The strength of the move up so far suggests the latter at this point but the depth of any bearish move could negate that.

Nikkei is also running an A-B-C pattern, more like the Dax and FTSE.

Net I see this as a short term swing only and expect further upside rallies once this bearish phase is done but the next rally phase could be the final one.

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Always a little tricky thinking about placing a trade before the US markets open but if they make a sudden move then it is hard to get in.  I tend to trust my set ups and keep my stops sensibly close.  Right now an interesting potential turning point back down is presenting with a small scale possible ending triangle on the S&P500 and a corresponding mini head and shoulders on the Nasdaq.  Only the Dow is not quite there yet so opening could see a rally there to join the others in a bearish set up.  Dax is also coming up in significant resistance and a break out to the downside on the very consistent bullish channel would be an indicator that things has swung, at least temporarily.

Friday the 13th, hmm, are there sufficient superstitious people about in the markets today?

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Another possible turning point in play.  Sticking with the Dax for the moment to follow on from the previous post, I have a potential channel breakout to the downside (broken on the 1H, still in progress on the 4H).  Bigger picture back drop to this (daily chart) is a break and retest of a lower channel line after the 3 July high (ATH was posted way back in Jan 2018, it is easy to forget that with all the US large caps focus...).  Oscillators are over bought on the daily and I have a strong A-B-C form for the rally.  I cannot tell if this is a wave A (green) of a bigger move up or a wave 2 (blue) termination yet but other markets lead me to the former rather than the latter at present so I am tracking a drop to a higher low than 15 Aug to set up a final rally phase.

On the 4H chart you can see the breakout in progress but the unclosed gap gives me pause and so another leg up is very possible.  However the gap may not be closed until the later "final" rally back up to higher highs takes place and actually if the market does now drop off the unclosed gap lends weight to my lead scenario.  There is NMD at the the recent top, which also occurs at the Fib 88% off the 3 July top and a junction of 2 trend lines.

On the 1H there is also NMD at the recent top and the breakout is clearer, albeit not yet confirmed to my satisfaction.  I am looking for a break of the support zone around 12300-325 to confirm a bearish phase. 

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Some commentators have been calling for "business as usual" on stock markets post the Fed, there has been quite the hubristic complacency about, which is interesting to a contrarian, the markets are usually unkind to that kind of thing.

Continuing on the Dax theme the breakout of the previous channel remains intact.  One might have expected a stronger rally on US large caps after the Fed rate cuts but then again 25bps is a bit of a lukewarm response to other major central banks.  There has been a rally but so far it looks to me like it may just be a small retrace (or relief) rally.  Right now we can see this breaking down after an A-B-C form move and with NMD at the recent turn.  Note the top on the Dax occurred at the Fib 88% and, if my road map is right, this market needs a bearish phase to prime the pump for the "final" rally (likely NOT to ATHs on the Dax but yes on US large caps). 

If I add the Nikkei to the mix I see something uncannily similar to the Dax.  Unlike the US large caps these 2 markets posted their ATHs in 2018 and since then have been in what looks more like a retrace rally than a motive one.  Like the Dax, the Nikkei put in a recent top on the Fib 88% (the previous high was 3 May) and is currently still within a bullish channel.  However there is strong NMD on 4H and 1H charts and a bearish pin bar forming on the Daily.  While the day is not yet done globally, it is in Japan...  Last night we saw a spike and drop to the lower line of the channel, which is where the market has remained.

We may yet see some initial rally price action on US open but with little on the economic calendar of note remaining for the week if the Fed action turns out to be insufficient to keep the bubble inflating then some air is gonna leak out.  I do not yet think this is the end, although technically it could be if the previous ATHs on the US large caps were the end of the Bull as some think is likely, rather I think it will be a significant bearish move that may shed light on the likely end game.

From a trading perspective I would be looking to Short a breakout of the Nikkei and an break lower on the Dax.

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So The Nikkei did break out of its channel to the downside and the Dax put in a lower high with NMD that looks like a short term retrace rally.  I am still waiting for a break of that ST support zone but I am Short the breakout on the Nikkei and the retrace turn on the Dax and stop protected with minimal or no loss.

My current thinking is that we will see another set of ATHs on US large caps but only retrace rallies on other major indices.  The end should be accompanied by Gold/Silver retrace turns and rallies   However the price action last week keeps alive the possibility that we have already seen the final ATHs on us large caps.  I will illustrate this technical set up with the SP500 as follows:

  • I think the bearish phase that started in Sept 2018 is clear on the weekly chart as a 3-4 retrace and now that we have a fresh ATH the ending wave 5 is simply a matter of time.  Is it already here or is there another leg up is the question.
  • There is negative momentum divergence at the ATH on the weekly chart that is stronger than the Sept 2018 occurrence that produced the Christmas bearish move, crushing all the Santa Claus rally hopes.  Given the stats on the Santa Claus rallies this could be construed as a signal that the great Bull may be coming to an end.
  • The ATH is at a very long term trend resistance trend line and the Friday 13 Sept 2019 top was slightly lower but posted an effective double top with the ATH.
  • On the daily chart there is also NMD at the ATH and a possible 1-5 EWT count up to the ATH (albeit an unusual one but that might be expected of an ending wave).
  • In addition there was an ending channel (AKA diagonal) leading up to the ATH turn.  The price action since Feb 2019 has been contained within a parallel line channel, the top line of which was hit for the ATH turn and also has a number of strong prior pivot touches (not shown).
  • The drop from the ATH can be seen as a 1-5 down (a wave 1).  And here is the first wrinkle because it could also be seen as an A-B-C (i.e. a retrace rather than a motive move, that would indicate an other leg up to a fresh ATH).  Assuming it is a wave 1 then the rally since is in an A-B-C on all major indices.  The fact that no index put in a higher high is consistent with a retrace and therefore a small scale 1-2 completion with the next move being a fast and strong wave 3 down.  This will be proved if the previous low is exceeded.  If not then another ATH can be expected.
  • The 1H chart also posted NMD at the Friday 13th turn.  Wave pattern is consistent with a wave 2 and C.  Again the rally looks like a retrace to a mini double top, which fell short of the previous high.
  • On the COT data the peak Longs and peak net positions of non commercials was at the Sept 2018 high.  Since then the non comms have been steadily unwinding their Long positions, down almost 200k since those extremes of Sept 2018, while Shorts have been on the rise.  Perhaps this is to be expected given all the recession talk and maybe we are due a surge to fresh ATHs on both price and COT?  Perhaps it is signaling a rally running out of support with only share buybacks keeping it up?  Time and price action will tell the tale.
  • All other US large caps can be seen in the same way as the SP500. All the other indices look to have topped much earlier than Sept 2018 and the price action to Sept 2018 is consistent with a 1-2 retrace.  The price action recently is consistent with a smaller 1-2 retrace with the exception of the FTSE100, which is less clear.  Even here though there is an interesting bearish signal in that it has recently posted a Death cross (MA 50 cutting MA 200 to the down side).
  • USDJPY has also turned down exactly where it was signaling, this FX pair typically responds to the Nikkei with a stronger Yen being reflected in a weaker Nikkei.  USDJPY roadmap shows a medium term bearish period at least. 
  • So net I slightly favour another leg up to fresh ATHs on US large caps and the price action will be very important on such a move to spot the ending phase of the wave 5.  However the case for the end of the bull is also very strong so I cannot rule it out, indeed it is about 50/50 in my estimation.  Thus I am short several indices including the S&P500 as indicated.  My approach is to hold these at break even and watch price action over next week to see if the move down turns very strongly bearish or holds up above the previous low.  If it is end of the bull we can expect to see some very bearish moves to signal this.
  • NIKKEI-1-hour_210919.thumb.png.8a49a3bb1e12e34d2a9e8e22e6b62419.png
  • DAX-1-hour_210919.thumb.png.d6170a87b9c40506605212cdb4f409dd.pngSPTRD-Weekly_210919.thumb.png.bc2ba52715e690ee46625d720fc2148c.pngSPTRD-Daily_210919.thumb.png.bd9258ba8eb2ee24175a5848905480c9.pngSPTRD-1-hour_210919.thumb.png.a4ef89609d53e2fce61bcecb305aaaa6.png

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Dax gap up from last night has been closed, as would be expected.  I would also expect all the other major indices to follow suit.  Now looking for the Dax to test that short term support zone around the 12300 mark and a break of this gets us into open country.

DAX-1-hour_230919.thumb.png.7f3c6066ff1c95257f651e387db06b4a.png

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