As we might have expected, getting short at an enticing rally target proved more difficult than it sounded. The position would have faced 'weekend risk,' requiring us to trust that Trump would not be tweeting up a bullish storm about the trade talks. Instead, Iran bombed a Saudi oil facility, causing a global selloff in stocks. The odd thing is, the selloff seems to have abated at the moment without ever having become an avalanche. Perhaps those who have yet to panic don't understand the situation? Regardless, we'll step back for now to see whether the selloff gets legs. We should resist the urge to buy anything in the meantime, since there's no way this very real crisis will simply melt away. _______ UPDATE (Sep 16, 8:55 p.m. ET): The futures gave up little ground following troubling news, suggesting that the bullish rampage begun in the last week of August has farther to go. We'll try to get short if this vehicle moves into record territory, but for now just spectate. ______ UPDATE (Sep 17, 5:45 p.m.): With the futures just inches from new record highs, I am unable to give you a clear target at the moment. I am somewhat skeptical of the rally, however, and can offer this chart to show you how to get short using an rABC pattern. It is intended for night owls, with a set-up that would apply to the December contract if it spikes into the 3010-3012 range and pulls back to the green line. (Note: Don't even think about this trade unless you understand how rABC set-ups work. They have been the chief substance of Wednesday tutorial sessions for the last couple of months.)
Today's 110-point drop can be a little intimidating, but an ABC pattern is an ABC pattern, and its magnitude should have no bearing on our ability to target the move. (Recall the scene in Hoosiers when Gene Hackman measured the distance from the basketball court floor to the rim and found it to be 10 feet, even though the court itself was in a 10,000 seat arena.) Anyway, we should look for the selloff to continue to at least p=2767.88, but a breach would portend more slippage to as low as 2733.50 over the near term. 'Mechanical' and countertrend trades will perforce be riskier than usual in dollar terms, but the rules for executing them are the same. _______ UPDATE (Aug 6, 10:06 p.m.): DaBoyz recouped a third of the futures' recent losses with the help of some urgent short-covering. Keep in mind that nothing has changed to mitigate the tariff war, only that China has finally placed a bid under the yuan, setting off a bear-squeeze panic in the dead of night. Shorts are the only buyers here, so we'll stand aside and let them shoot holes in their feet with semiautomatic weapons.
The pattern shown in today's chart (inset) may be helpful in determining whether June's steep rally will prove to be a bull trap. Strictly speaking, it shows an rABC (reverse-ABC) set-up of the kind that we typically use when stalking 'counterintuitive' entries that go against the trend. In this case such a signal would be bearish, with a tripwire at the green line to tell us when to get short. However, the point 'C' high is not quite high enough to qualify as ideal. Better suited to our purpose would be a 'C' occurring nearer late May's 2961 peak. A run-up to around 2954 would be ideal, and so that's what we'll look for. These patterns are experimental and I have only recently begun to use them, not only in my own trades, but in set-ups we look for during Wednesday tutorial sessions. Since most subscribers will be unfamiliar with this adaptation of the Hidden Pivot Method, I will provide more-specific guidance than usual in the Trading Room if the set-up looks like it will pan out. Notice as well that, taken as a whole, the chart shows an inverted, potentially very bullish inverted head-and-shoulders pattern. If you see it, you can also see that a plunge of 50-60 points from current levels would not diminish the bullish look of the chart. I don't put much store in H&S patterns, but neither do I ignore them when they are this compelling. ______ UPDATE (Jun 20, 11:13 p.m.): Although a drop to 2905.50 (basis the September contract) would trigger a theoretical 'counterintuitive' short, I'd ignore the signal because there is a more compelling bullish target at 3095 still outstanding in the S&P 500 cash index.
The futures looked torqued at Thursday's close for a run-up to the 2932.50 target shown. This would become an odds-on bet if and when buyers exceed the midpoint resistance at 2900.00 decisively. The scenario seems so likely that it is tempting to place a contrarian bet against it, especially since no trader on earth could have gone home Thursday harboring thoughts of a downturn. For the record, I hold short positions in the E-Mini Dow and E-Micro Nasdaq with stops, respectively, at 26,290 and 7601.00.
The futures were noodling aloft a short while ago, allowing DaBoyz to milk an after-hours, distributive rally for all it was worth. Lo, DaDirtballs have just pulled the plug, allowing the E-Minis to fall the equivalent of about 130 Dow points in mere minutes. What gives? There is nothing on Bloomberg.com to indicate financial or geopolitical mayhem, but something assuredly is going on. Unfortunately, the cause is known at this moment only to those who pay for their information rather than get it 'free' on the Internet. In any event, the Hidden Pivot target at 2863.00 shown in the chart can serve as a minimum downside objective for the time being. Its decisive breach would suggest more weakness to come.
The short I detailed here yesterday never got close to triggering, but here's another: Get short if the futures fall to the green line, and use the red line (p) as a minimum objective. I have not specified prices for either Hidden Pivot level because the rally could yet exceed the pattern's point 'C' at 2905.75, creating a new 'C'. The trade is based on the so-called rABC, or reverse ABC pattern, popularized by my mentor, the late Ira Tunik. However, the pattern had significant limitations for purposes of analysis and offered less-than-stellar odds for the trader. I am experimenting, however, to determine whether rABCs yields better results if two very specific conditions are met. My suggestion in the meantime is to paper-trade rABC-based recs until you are confident using them. I invite all subscribers to share their findings in the chat room. Please do so VERY sparingly, however, so that the discussion does not become cluttered with poorly developed, drawing-board ideas._______ UPDATE (Jun 11, 10:32 a.m. ET): Based on the so-far 2911.50 high this morning, the 'CI' short would trigger at 2870.19, stop 2912.00. Yes, that's risking $2100 per contract -- not recommended as a trade-out-of-the-blue, but for those who are in and out of ES actively.
Today's chart is different from any I have presented here before because it emphasizes stochastic indicators rather than Hidden Pivots. The graph shows a potentially bearish divergence of price peaks relative to 'overbought' stochastic peaks. I say prospectively because the divergence would be negated if the futures were to rally above peak #1. In any event, the picture suggests that a very enticing 'counterintuitive' short could develop if ES were to turn down from a high close to, or even slightly above, peak #1. If the downturn trips a conventional sell signal at X, go short there with the goal of taking a partial profit at p (which remains to be determined). The potential for any downtrend from near these levels to achieve 'd' is significant, since the stochastic divergence would act as a kind of turbocharger. _______ UPDATE (June 10, 9:26 a.m. ET): The 'CI' short noted above would trigger on a drop touching 2856.50. This is based on C=2898.00, the overnight high. This is somewhat above A=2894.00, but that would not diminish the turbocharger effect or the attractiveness of the trade. A resurgence above 2898.00, however, would. Here's the chart, which notes that a quick fall to the green line would give the trade a better chance of working.
The 'counterintuitive' trade recommended for Tuesday triggered at 2787 and was showing a theoretical gain of $900 per contract shortly after the close. Because of the way the rally blew past the green line, it is an excellent bet to achieve a minimum 2846, the midpoint Hidden Pivot of the pattern shown. If you did the trade, I would recommend taking a profit on half of your position at these levels and using a break-even stop for what remains. Exit an additional 25% at 2846, then keep 25% for a potential moon shot to as high as 2963. At that price, the gain on any contracts still held would be $8800. Subscribers who hold a position should let me know in the trading room. I will provide tracking guidance if I hear from at least two of you who followed my recommendation. (Note: I also advised using the micro contract as an alternative during an impromptu online session held Tuesday morning.) ________ UPDATE (Jun 5, 9:18 p.m.): In the chat room just now, I have advised exiting any remaining contracts at a current 2817. The additional theoretical gain would be about $1500 per contract. I am skeptical that this rally will get much further, or that desperate hints of easing from the fraudsters at the Fed will carry the day. ________ UPDATE (June 5, 5:33 p.m.): A weekly close above 2846 would bolster the bullish case, which I've pegged to a 3095 target for the S&P cash index.
Friday's plunge came within six points of fulfilling the 2744.25 target we've been using to keep us confidently on the right side of the trend. This Hidden Pivot support seems all but certain to be achieved Sunday night or Monday morning, but the selloff could conceivably continue down to as low as 2732.50 if the support doesn't hold. At that level the futures would be in good position to set up a 'counterintuitive;' buy signal. I'd suggest tuning to the chat room at that time if you trade this vehicle. The extent of the bounce is unpredictable at the moment, but it would need to exceed 2842.00 before we start taking the rally seriously. _______ UPDATE (Jun 3, 12:30 p.m.): The futures have bounced eight points tonight from 2732.25, a single tick beneath the target given above. This is well short of the 2791.00 print needed to trigger a 'CI' trade, but if you simply bottom-fished with a tight stop-loss, you should have taken half the position off for a partial profit. In any case, you're on your own. _______UPDATE (Jun 3, 6:27 p.m.): Six hours of gratuitous swings lowered the CI trigger to 2787.50 but otherwise changed nothing.
The head-and-shoulders pattern shown implies the futures could fall at least a further 50 points in search of traction. It is a flimsy support, to be sure, created by an important low at 2726 recorded in early March. The suspicion grows that the ten-year-old bull market is over, but we've been there before and stocks have recovered every time. If a bear market has in fact begun, we should see it first in uptrending ABCD patterns that fail to reach their ' D' targets and downtrending (i.e., corrective) abcd patterns that overshoot 'd'. The first instance of the latter lies at 2744.25, a Hidden Pivot support that must evince a strong bounce if bulls are not about to get trounced. Concerning the rally target, I've proffered one at 3095 for the S&P cash index that has grown more distant and which now lies about 11% above current levels. This no longer looks like an odd-on bet, at least for the near term._______ UPDATE (May 31, 8:23 a.m. ET): An ESU19 target at 2747.00 is equivalent to the June target we've been using at 2744.25. Any lower would activate 2734.25.
