E-Mini S&P

Now wasn't that rally special! Our friend Mike Schurr alerted me Wednesday night to the pattern shown, instantly solving the mystery of why the futures were refusing to go any lower despite evidence that the world economy is rapidly going to hell in a hand basket. Buyers briefly changed their deranged minds in the early going Thursday morning, surrendering the modest gains they'd achieved in thin markets overnight. But when they caught a whiff of bull manure emanating from the energy patch, where crude was in the throes of a dead-cat bounce, the short-squeeze on Wall Street was off and running. It may have seemed impressive at the time, but notice that it didn't come even remotely close to surpassing any peaks of significance, even on the lowly hourly chart (inset). Another short-covering hoax?  Yes, probably. Even so, we'll stand aside Friday and let it do its thing, since you can never tell what kind of craziness will seize the proletarian mind ahead of a three-day weekend. My gut feeling is that the bear market is still too young to be generating the kind of short squeeze rallies that will cause bears to pull their hair out. Whatever happens as the week draws to a close, the Rick's Picks chat room will offer a ringside seat and technically illuminating, if aggressively biased, running commentary. Click here for a free trial subscription that will let you join the fun for two weeks. _______ UPDATE (10:20 a.m. EST): The broad averages are getting crushed this morning, reversing the phony exuberance of an overnight short squeeze. What a delightful end to the week! U.S. stocks have evidently become completely subservient to the ups and (mostly) downs of Chinese stocks, and to news concerning the yuan. A small devaluation last night has caused the Dow

Short-covering persisted for a second straight day, but it was too feeble to count as a clear victory for bulls. We'll stay out of their way for now nonetheless, but that doesn't mean we can't try to intercept with short offers in opportune spots.  The pattern shown, for example, encourages a try at 1951.00, although p and p2 can also be used to get short if you do so via 'camouflage'.  Essentially, this means waiting for a (very) minor, downtrending abc pattern to trigger you aboard once the actual Hidden Pivot has been touched or closely approached to the upside.  Because the rallies are so lacking in vigor, we should look to get short at every possible opportunity. In the chat room, some are doing this instinctually, others by-the-numbers. Tune in during the regular session for interesting ideas in real time. Consider trading from the long side enroute to rally targets, since that will provide a cushion for your stops when you lay out shorts.

Using the same chart as the one shown, we'd been expecting the futures to come down to exactly 1888.44 before launching into a corrective rally worthy of our attention. On Monday, sellers drove this vehicle down to 1892.50, four points from our target. Is that close enough for us to infer that sellers are done pummeling the S&Ps for now? The jury is still out, but I have my doubts that the selloff will abate for more than a couple of days.  In any case, the chart I've reproduced today inverts our recent, bearish point of view to focus on a lesser uptrend that can help us assess the eagerness of buyers if Monday's weak short-squeeze rally should turn vicious. Specifically, the rally would need to hit 1954.88 to trigger a theoretical buy signal; and to exceed 2017.25, the midpoint Hidden Pivot of the pattern, to give bears serious reason to worry.

With stocks falling hard, this vehicle has moved very predictably and precisely to Hidden Pivot targets broached here in the past week. On Friday, for one, a bull-trap rally an hour before the opening topped to-the-exact-tick at a Hidden Pivot resistance I'd billboarded with this post in the chat room: "ESH has just popped psychotically through p=1951.38, [making] D=1964.75 a certainty."  Ten minutes later, the futures in fact made their intraday high at 1964.75. Anyone who got short there could have reaped a windfall, since the futures fell for the rest of the day, hitting a low at 1910.00 that would have been worth as much as $2650 per contract. That low lay just a single point from the bearish target at 1911.00 that I'd disseminated the night before as a minimum downside target. Now, my gut feeling is that this Hidden Pivot support will fail on Monday, sending the futures down to an 1888.44 target that I sent out at the same time. "Mechanical' shorts from 1911.00 are advised, but only if you understand the simple rules that govern this type of trade. Stay tuned to the chat room for guidance in real time. if you'd like to learn more.  Please note that if 1888.44 gives way easily, the futures are likely to continue falling until 1817.00 is reached. At that price -- a screaming buy, as far as I'm concerned --  the futures will have shed 13.5% of their value since topping in early November at 2102.75.

Thursday's gratuitous price hump did little to dispel fears that the plunge of the past week may be about to grow even more ferocious.  Bulls would need to push this brick above the two peaks shown, the higher of which lies at 1991.00, to turns things around short-term. Otherwise, look for weakness to continue to at least 1911.00, a minor Hidden Pivot support. If it, too, gives way easily, the big-picture target at 1888.44 noted here earlier will be in play, with a worst-case of 1817.00 (!) if it cannot hold. _______ UPDATE (8:26 a.m. Friday EST): A short-squeeze rally overnight has stalled so far at the 1959.88 midpoint pivot associated with p2=1888.44.  It is bullishly impulsive nonetheless, with a D rally target at 1964.75. The coordinates used to determine that Hidden Pivot, on the 15-minute chart, are: a=1933.75 (1/7 at 8:00 p.m.); b=1960.50 (8:45 p.m.); and c=1938.00 (7:00 a.m.).  This is the most relevant trading pattern at the moment, confirmed by a stall moments ago at p=1951.38. ________ UPDATE (9:17 a.m.): The 1964.75 target given above came minutes ahead of a 13-point rally and caught the spike high to the exact tick. The pullback so far has been to 1944.50, implying that a short from the target would have produced a gain of $1000 per contract in 35 minutes. A long just before ESH went ballistic would have added an additional $650 per contract to the win.

Bears' inability to deliver a knockout punch yesterday left them struggling for the entire session to make even modest progress toward the two downside targets shown.  They would become slight underdogs if the weak short-squeeze in evidence on Wednesday punches past peaks #1 and #2 (see inset), particularly in the early going.  Not being clairvoyant, I won't hazard a guess about which way this Punch 'n' Judy show will go on Thursday. If the broad averages turn significantly lower, however, use the 1952.25 target flagged here the other day as a worst-case low for the near term.  If hit, this Hidden Pivot will likely be tradable with a stop-loss as tight as you can abide. As always, you can bottom-fish more aggressively if you've racked up gains on the way down.  More immediately, three of the Hidden Pivot levels shown -- x, p and p2 -- can be used to initiate 'mechanical' trades, either from the long or short side. For real-time guidance in this task, tune to the Rick's Picks chat room. _______ UPDATE (January 7, 12:12 p.m. EST): Sellers have been crushing minor Hidden Pivot supports, implying that we'll need to use bigger patterns to identify important swing lows precisely. In this case, we'll use A=2110.00 (7/20/15) from the daily chart. It projects minimum downside at the moment to p2=1888.44 (!)  The D target associated with this pattern lies at 1817.00, about 7% below current levels. That would represent a drop of about 13% from last summer's record highs.

With shorts caught in a mild squeeze at the bell, bulls will hold a small edge Tuesday night. If they can keep this vehicle buoyant until Wednesday's opening, that will increase their edge when the regular session begins. Day traders can choose their opportunities as they arise, since they are likely to come from subtle changes in the chart that cannot be predicted at the moment. The chart shows a possible opportunity of another sort  -- i.e., one that would take shape if the futures should surprise by diving anew. The precise bounce from p2 suggests that a breach of this support would portend more downside to exactly 1952.25.  This means you could bottom-fish with a 1952.50 bid and a stop-loss as tight as 1.00 point. 'Mechanically' shorting a retracement back up to p2 may also be possible, provided the rally it meets our simple criteria.  Tune to the chat room for real-time guidance if you're interested in the trade. _______ UPDATE (10:22 a.m. EST): The big, bearish  pattern was drawn slightly wrong, with an erroneous point 'C'. Shifting it to 2075.00 (12/29, 9:00 p.m.) yields D=1955.75, my target for now. Yesterday high turned out to have been a fabulous mechanical short at p=2015.38. Now, the mechanical short is from p2=1985.56, stop 1995.50.

The bounce from Monday's lows has been unimpressive so far, but we should wait to see whether the pace of short-covering picks up during the night session before we write it off as a flash-in-the-pan. The a-b rally leg shown is clearly and decisively impulsive on the hourly chart, but it doesn't look powerful enough to gestate a c-d follow-through capable of reaching its target without stopping out an ostensibly tradable point 'c' low or two first.

Index futures have opened Sunday night with a timid thrust higher.  Please note that this vehicle would need to hit 2057.75 to demand our attention, since that would generate a robustly bullish impulse leg on the hourly chart. Although I strongly doubt this will happen on the first trading day of 2016, we shouldn't be surprised if, after a day or two, shorts have backed themselves into the same corner where they freaked out last week to trigger a two-day spasm of short-covering. Whatever happens, DaBoyz seem unconcerned at the moment that the new year will disrupt the business-as-usual blitheness that has prevailed on Wall Street since 2009. _______ UPDATE (11:42 p.m. EST): The flurry of buying faded quickly, giving way to a dive that projected to 2019.00, a Hidden Pivot one point beneath the so-far low.  The rebound should last for at least an hour or two, but if the pivot gives way sooner it would portend more slippage down to December's lows near 1990.00.