Short-covering late in the session helped lift stocks off their intraday lows after Trump promised to produce a transcript of his conversation with Ukraine's leader. However, the bounce should have been feistier, given that the futures had stopped out a visually important low at 2958.75 recorded two weeks earlier. A relapse therefore seems likely, and a close beneath the low would probably suffice to send this vehicle down to early September's lows near 2900 in search of support. Most immediately, if it hasn't traded above 2979.75 by 10:00 a.m., look for a slump down to 2954.25, the first place whence a bounce would be logical (60-min, A= 2009.25 on 9/24 at 10:00 a.m.). You can bottom-fish there with a stop-loss as tight as 2952.75. ______ UPDATE (Sep 25, 9:11 p.m.): The trade caught the low of a 40-point rally within two ticks (!) and was an easy winner. The trampoline bounce generated a $600 gain in just ten minutes and by day's end as much as $1900 of profit per contract. However, only one subscriber reported having done the trade, and so I did not establish a tracking position. The rally looked strong on the lesser charts, but it'll need to hit 3010 to show evidence that new record highs are coming.
The futures tripped a 'mechanical' buy signal when they sold off Friday afternoon, but they subsequently failed to get airborne. The yellow flag will be out Sunday night because of this, even though the buy signal remains theoretically in effect. A bigger picture shows that last week's modest gains fell slightly shy of record highs. Stocks are in dangerous territory, with traders undoubtedly sharply divided over what is likely to happen next. We needn't share their anxiety, however, as long as we reckon the odds based, simply, on impulse legs in various time frames. Stay close to the Trading Room for timely guidance. _______ UPDATE (Sep 23, 6:01 p.m.): The 3042.25 rally target given here earlier remains viable, having survived Monday's swoon toward the pattern's point 'C' low by 1.50 points. Use p=3011.50 as a minimum upside objective for now. An easy push past it would shorten the odds of a follow-through to 3042.25.
A wild and wacky day, for sure. Traders are supposed to love volatility, but who among them could have captured the dollar opportunity in Wednesday's fearsome machine-driven swings after the Fed announced what everyone on earth had expected. The initial feint was lower, and it suggests that traders were at first disappointed that the Fed had not eased by 50 basis points rather than 25. But by day's end they seem to have figured out that a 'mere' 25 basis points was no cause for despair, especially since they can be certain more easing is coming. For now, use the 3042.25 target shown as a minimum upside objective. You can also use a pullback from our 'sweet spot' to initiate a mechanical buy at the green line. If you catch a ride, use a piece of your profits to cushion a tight stop-loss for a short from D=3042.25. ______ UPDATE (Sep 19, 5:20 p.m.): A pullback to the green line at 2996.00 (see inset) would trigger a mechanical buy, stop 2980.50. Initial risk is $775 per contract, so this one may not be for everyone. It will work best if the bid is hit overnight Thursday or early in Friday's session. _______ UPDATE (Sep 20, 8:32 a.m.): The pullback to the green line (2996.00) occurred at 4 a.m. and produced a profit of as much as $1400 by noon, when the subsequent rally topped at 3024.50. The 3042.25 target of the same pattern will remain valid unless C=2980.75 is breached to the downside. Several subscribers reported having done the trade.
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.
