Projection to the 3,300 area.
Testing The Underside
With just a few minutes to go before the open, the market is set to begin slightly higher.
The potential for a rally was expected as detailed in the 3/9/19 update. So here we are, ready to test the underside of the channel break shown in the chart.
Charts by StockCharts
Are The Bears Locking Phasers On Target?
Are there similarities to this episode and current conditions. Has the ‘Enterprise’ (S&P 500) taken a surprise phaser hit?
Will the bears come around for another attack; if so, then what’s our response.
If you're short the S&P, the week ends with you most likely operating from a position of profit.
An obvious stop level would be the high set last week at 2,816.88 (approx: 281.87, on SPY).
Typical market behavior is to attempt a rally. We’ll be watching for that.
However, if the bears have assumed control, then continued downside action is the expectation.
Then & Now
March 13, 2019 will mark a Fibonacci 89, years since Smoot Hawley went into effect.
The attached chart (courtesy of macrotrends) shows the location of the protectionist tariff and the recovery market top just a month later.
In a few days, possibly on March 15th, tariff trade talks are set to resume between the U.S. and China.
In both cases, it’s not what’s in the legislation that matters. The important part is that market and social conditions existed to bring about those events.
As Prechter puts it (and to paraphrase), the news does not drive the market. The market drives the news.
In 1929, the market crashed and then went into a multi-month recovery. Once that move rolled over, it was a steady sustained decline into the abyss.
This time, the market ‘corrected’ down first: It then went into a multi-month recovery that appears to have turned.
What’s next is unknown. However, back-to-back protectionist trade events separated by 89 years (almost to the day), are yet another indicator that significant downside moves may be the more probable outcome.
S&P, Projection Target
With about twenty minutes to go before the open, the S&P is trading relatively unchanged.
The chart insert is another sobering picture for the bulls.
In addition to a potential right‑side channel contact noted in yesterday’s update, it appears the S&P has also met a 61.8% Fibonacci projection.
As a reminder, projections are different from a retrace level. The Fib tool shows projected market wave terminations based on prior wave behavior.
We can see how clearly the S&P not only lines up with the 61.8% level, but how it lines up perfectly with the 100.0% level as well.
3/5/19: S&P Trading Channel
During the pre-market session, the S&P is trading just a bit higher at +0.08%.
Yesterday’s penetration of the prior week’s low actually put the market in spring position (similar to bonds discussed in the previous update).
If the overall trend has shifted down, then we can expect the spring to fail at some point before a new high and the market to reverse lower.
The chart insert above, (StockCharts) shows a potential disturbing picture for the bulls.
If the supply line is in-effect and is confirmed by later price action, then we have an aggressive downward trading channel.
3/4/19: S&P: East Bound And Down:
At about 12:15 p.m. EST, the S&P posted an outside down weekly bar. It does not get any more obvious.
Our preparations to position short have already been completed in the preceding weeks. There was just one analysis bobble at the narrow range bar during the week of February 8th.
We’re on the short side (but not in the S&P) and will be monitoring price action to determine if our trade set up has potential for failure or to locate additional points for entry.
Be on guard for the possibility that bonds and the markets may decline simultaneously.
With that in mind, the bond proxy TLT, may be rising just a bit today but it probably is a result of last Friday’s penetration below established support.
That penetration effectively sets up a spring condition. The rise in bonds may be a response to that trade set‑up.
Of course, we expect the spring to fail at some point and for bond prices to continue lower.
Note: There're still four more trading days to complete the S&P weekly bar. Anything can happen.
2/18/19: S&P Pushes higher, out of danger for now:
The S&P hesitated at the identified danger point in the narrowest range since late September, last year.
Had one positioned short at this interval, the loss on being stopped out (at a new weekly high) would have been minimal.
Working several attempts to position long or short in a market, according to Dr. Elder is a behavior pattern associated with the professional. Amateurs will make one attempt and if stopped out or forced to exit out, will not re-visit the set up, period.
Livermore called this type of successive positioning action as “probing” the market. He would take part of his account, enter a position long or short and then observe if the probe held. If so, he would increase position size.
As the S&P has moved higher, the resistance area identified is the next level to observe if and when price action contacts that area.
2/11/19: S&P Still In Danger?
What exactly is the danger point?
Just because today’s close was seven one-hundredths of a percent higher (+0.07%) than Friday’s session does not negate the potential for a reversal.
The chart insert is a close‑up of the S&P.
During today’s session, price action has essentially come to a standstill.
The danger point is a location on the chart where support or resistance has been penetrated with risk and volatility minimized.
S&P Meets Target, Now At Danger Point
The S&P has met its measured move target and is at the danger point.
It's not the top or bottom of a move. It’s the location of psychological extreme where both the bulls and the bears are in the greatest amount of pain.
Price action could go either way. In Wyckoff’s book from 1910, he talks about the “weight of a feather” could move the market up or down.
That is where the S&P stands at this point. Monday’s price action will tell us if the bulls remain in charge or if it’s time for a reversal and possible re-test of the December, 2018 lows.
H&S Pattern Reversal?
Can a massive Head and Shoulders pattern be negated? It’s happened before and the result was the 2007-2008 melt‑down.
Way back in October of ’02, the S&P was set to break below a well established neckline that had been constructed over a four year period.
A break would have resulted in a measured move decline of approximately 45%, putting the S&P down to around 1993 levels. The excess of the Internet bubble would have been (completely) cleared out and a new, sustainable bull market may have been the result.
Instead, and only years later was it hypothesized, at the precise moment of neckline breakdown, certain entities that have unlimited resources decided to force (or foment) a reversal of the trend. We know the ensuing result.
Now, we have the market apparently reversing (again) from a well established H&S neckline and well into the 50% retrace level.
Will the market move to new highs? More importantly, does it really matter?
Could the S&P make it all the way to the 2,645 level?
Typical S&P behavior is to retrace 50%. From empirical observation, this level is contacted more times than 38.2%, or 61.8%; so just the S&P behavior itself favors a 50% retrace.
However, it should be noted, on a close basis, the 2,485 level (where the market closed today) is an exact 23.6% retrace. This could be a pivot point as well.
The market itself will define where the pivot will be. At this point, from the 12/26 low, daily price action is making higher highs and higher lows.
The major trend break in the S&P 500, tells us the ten year bull market from the 2009, lows is finished.
What happens next is obviously up to the market itself. However, an estimated (first) support level is around 2,135 as shown.
12/21/18, 8:52 a.m. EST
That did not take long. The S&P confirms the neckline as it touches, then bounces (sort of) higher.
The standard measured move for an H&S top is shown.
S&P Head and Shoulders
The S&P looks to be forming a Head & Shoulders (bearish) pattern. If this pattern is in-effect, then we’ve identified possible key areas.
Could there be a decline into the proposed neckline area before the end of the year?
Well, it makes sense. The market is down for the year and accountants are likely calling their clients advising them to sell their losers and get a tax break.
That would set up for the (potential) January effect in the New Year.
1/6/19: S&P 500 At Resistance
The weekly chart of the S&P 500, shows we’re testing the underside of resistance. Support was decisively penetrated during the week of 12/21/18.
That support has now become resistance. This is typical market behavior. If the S&P is to rise higher into a 50% retrace, then price action may have to retreat (to build fuel) for an advance.
With such a decisive penetration below support, a move back above this level, now resistance, would be a significant bullish indicator.
S&P 500 Long Term View
A triangular wedge typically occurs at the end of a long and sustained move.
The S&P chart shows the last significant wedge was about seven years ago.
Especially bearish in the current structure is the 'throw-over' and return into the pattern.
Unless there's more manipulation to the up-side, the take away is the bulls have exhausted themselves after years of fomenting the market higher.