E-Mini S&P

The usual talking heads were attributing Wednesday's V-shaped recovery to firming oil prices, but it would have been just as accurate to say the Easter bunny or Vladimir Putin was behind it. Whatever the cause, short-covering bears scrambled for cover about an hour into the session, when initially fierce selling appeared to dry up. The intraday low in this vehicle was 1246.50 -- equivalent to a nearly 300-point plunge in the Dow and just six points from the 1240.75 target we'd been using as a minimum downside objective. The fact that the target was not quite reached should make us cautious about getting in the way of any follow-up rally in the days ahead, since it could conceivably achieve marginal new record highs.  It would take but one more surge equal to yesterday's to get it there. Meanwhile, traders can use the 2092.00 target shown as a minimum upside objective for the very near-term. Night owls can try a 'mechanical' entry at either p or p2, but don't attempt it unless you know what you're doing.

The bull market is dying, with feeble short-covering rallies not half as strong as the ones we saw just a couple of months ago. They have been ending with a whimper, like a dog crawling to the side of the road after being hit by a car. This vehicle avoided the p2 support at 2057.75 (see inset) the first dip down to it last Friday, but my hunch is that the pivot will be breached shortly, giving way to a finishing stroke to the 2040.75 target flagged here earlier. You can try bottom-fishing there, but the payoff will be better if you've been short on the way down. That will be most easily accomplished via a 'mechanical' offer at 2057.75, stop 2063.25, after the pivot has been exceeded by perhaps 3.00 points (or so).

Monday's rally was strong enough to spook a few bears, and it even generated a fresh impulse leg on the hourly chart. However, it left a larger, bearish pattern intact, and that's the one that still rules. It would be negated by a move above the 2109.25 point 'C', but until such time as that happens we'll continue to use the 2040.75 target for the near term.  There are mechanical trade that could be attempt, respectively, at p and p2, but price action has been so wacky lately that I'm not going to recommend any specific plays for night owls.

There are no crystal-clear patterns that would yield a commensurately clear target, so the one shown at 1041.50 will have to do, at least for now. I've favored it because of the many bounces that occurred precisely from the 1080.25 midpoint pivot that is associated with the target.  There are five possible 'mechanical' trades that could conceivably be derived from this picture over the next week or so: 1) a tightly-stopped long from p (although the many bounces from p that have already occurred will have diminished the usefulness of this pivot); 2) a short from p after it has been exceeded by a perhaps three or so points; 3) a tightly stopped long from p2; 4) a short from p2 after it has been decisively penetrated; and, 5) a long from D=1041.50. More downside to these Hidden Pivot targets should NOT be regarded as a foregone conclusion. My gut feeling is that gold will rally very sharply if the stock market begins to fall dramatically. That would imply the futures are basing here rather than being under distribution. The first hint of this would come on  a rally exceeding a visually distinctive external peak. At present that peaks lies at 1119.00 (July 20).

Despite the rally into Friday's close, bearish patterns of both small and large degree continue to weigh on the futures. Their fall was arrested on Friday in a too-obvious place, just above a key external low recorded on July 28. If and when it gives way, expect the futures to fall to the 2040.75 target shown. That's a Hidden Pivot support, and it is back-stopped by some structural lows near 2036 achieved early in July. I expect these lows to give way, but we'll need to see how easily before we make any further judgments about the bear's strength. Meanwhile, traders should position from the short side and fade any rallies. I still believe that the stock market made an internal top with the peak in NYSE breadth in late April. If so, we are witnessing a nascent bear market that, given the incredible leverage in the financial system, stands to be the worst in U.S. history. It is worth recalling that the Great Crash of 1929 was preceded by a last-gasp rally in August of that year.

Yesterday's selloff was refreshing, even if bears were unable to hit the four-bagger that we all know is coming.  Maybe later in August -- or at least, sometime before the October Crash that too many prognosticators seem to be expecting.  Thursday's moderate selloff exceeded virtually all of the appealing targets one could have extrapolated from the intraday charts. The one shown is less than stellar because the tail end of the A-B impulse leg failed to exceed any external lows. It'll do in a pinch, however, so we'll plan on more downside to at least 2052.00, the D target. If it's easily exceeded there will still be support near early July's low around 2038.00. You should bottom-fish the Hidden Pivot levels shown in the chart only if you are  reversing a profitable short position. Payroll numbers are due out, and DaBoyz will not likely pass up a chance to goose shares whatever the news. My gut feeling is that if the initial move is indeed up, it will be a shorting opportunity. There is no bullish buying interest whatsoever right now, and it has gotten harder and harder for the smart guys to stampede the only buyers left in the game -- i.e., short-covering bears. Also, there is no way the payroll numbers -- a hoax that has grown all-too-tiresome -- can be ostensibly meaningful enough to trigger more than a short flurry of buying.

I'm quite confident in the pattern shown -- it looks and quacks exactly like a duck -- even if the futures seem less so. Perhaps they could use some obedience training?  Yesterday they pushed past the midpoint resistance, presumably bound for the p2 pivot at 2116.00. Instead, the little bugger turned tail and retreated all the way down to the green line before buyers stepped in. This is simply crazy, especially since the intraday high occurred not in the middle of the night, as has been customary, but in broad daylight, an hour after the opening bell. This would seem logical if there had been news after the opening conducive to a short squeeze. But that was not the case, since the headlines were dull and uninspiring. Coming in today, we'll stick with the bullish targets shown. They will remain theoretically valid until such time as the 'C' low at 2080.00 is breached to the downside. Night owls can try bottom-fishing at 2087.75, the p2 pivot of the minor downtrend from Wednesday's top. ______ UPDATE (10:41 a.m.): The little drecker has let gravity do all the work this morning.  The slight overshoot of a minor 2084.50 downside target implies that a pattern of larger degree is at work, with a target at 2079.25 (15-minute, A=2107.75 on 7/31.  Note: The uppercase 'A' implies that, by my reckoning, the dominant trend is now bearish; and that any rally from 2079.75 should be shorted.)

More than six years into the bull market, it's clear that bears must still fight for every inch, even on days like yesterday, when there was no bullish news to hold stocks buoyant. Six hours of headless-chicken price action brought the futures only marginally closer to the downside target at 2052.00 noted in my last tout. Today's analysis comes with a fresh chart showing a lesser pattern that will likely be more useful for short-term traders.  The bounce from p=2082.25 has validated the pattern while also opening the door to shorting 'p' mechanically' if price action near that number meets our simple rules. I offer this trade with the caveat that bears might have to endure more than their fair share of pain just to gain a few measly points. Focus on the big picture, however, which suggests the bull market begun in 2009 may already have topped, and it may be easier  to deal with the inevitable whipsaws. _______ UPDATE (August 5, 11:03 a.m. EDT): The future never dipped below the 2082.50 pivot, so the short trade never triggered. Instead, they got goosed sharply via a short squeeze that projected as high as 2127.75 most immediately.  The pattern's midpoint pivot at 2104.00 has been penetrated within the last hour, shortening the odds of a continuation at least to p2=2116.00. Accordingly, you should position mechanical trades from the long side.

The futures thrashed around for several hours before diving precisely to a target I'd aired in the chat room around mid-dive. The target was closely coincident with the 2080.50 midpoint support shown, but once the latter number is breached, look for more downside to 2066.25, and thence 2052.00. Both of these Hidden Pivots were mentioned as well, and I expect them to be reached, since this vehicle has looked like hell lately. I've sketched three hypothetical 'mechanical' trades than can be culled from the pattern, and night owls in particular should check them out. A fourth, shorting a rally up to p2=2066.25 after it has been breached, may also be possible.