The Bull/Bear Scenario …

Yesterday’s high of the day was $270.00 for the SPY … that took price officially into the SLOT resistance zone that I like to monitor for counter-trend rallies.  Due to the strength of the move off of the prior highs into Friday’s low, I think that it is highly likely that we need at least one more leg to the price structure we are currently in when looking at the 195-min chart.

Whether that next move to a new lower low is the last leg of a corrective price structure that precedes a push up to new higher highs is yet to be seen.  I suspect that due to the strength/melt-up of the market into the January highs, we are going to need a bigger more complex price structure move lower … that is why I believe traders will see a 3-wave structure to this correction before it is all said and done.

Here is what I think traders should be preparing for …

Bullish Scenario – SPY 195 Minute Chart #1

The typical turning point for a corrective bounce is that 61.8% resistance level – $273.72.  The “C” wave of an ABC zigzag will typically terminate at around that 1.272x extension target, which would see the SPY get down to the $243.76 level.

Bearish Scenario – SPY 195 Minute Chart #2

So the near-term resistance zone for a bigger 3-wave corrective move in price is still at that 61.8% resistance level … Wave-2’s typically will terminate at the 1.618x extension target zone at around $232.12.  The final Wave-3 target zone would be down at the $220.99 level.

Bullish/Bearish Scenario – SPY 195 Minute Chart #3

In either of the bullish/bearish scenarios I depict above, price will need to find an interim resistance level here soon … the intra-day high so far today for the SPY is at $271.79, which is pretty close to the last pivot high of $272.36 and that 61.8% resistance level of $273.72.  Maybe we grind into that final resistance high on Friday which will then set up the next leg lower to begin next week.

Bottom Line – I believe the strength of the melt-up into the January highs, and the strength of the push lower last week will lead to at least a 2-wave structure lower into support.  Personally, I think a 3-wave structure is what is going to happen but I will be giving the more bullish scenario respect as we push into that $1.272x / $243.76 zone as well.

Cheers … Leaf_West

Daily Bull Flag Scan …

I’m not really looking for swing trades here in the current market, but I did look at my daily time frame bull flag scan results earlier today.  The best looking bull flag identified to me was for CHRW the $12.7 billion transport company.  Here is the bull-flag setting up on the daily chart …

CHRW – Daily Chart

You can see the nice little bull-flag set-up on the price chart … price is just underneath the 20SMA and its signal line so if price is going to break this flag pattern, it will also return to the bullish side of the moving averages.

The Relative Strength indicator on the right-side panel shows how well CHRW has held in during all of the selling in the market over the past week or so … impressive.

The last quarterly earnings report was released on January 30th and revenue was up 16.1% which was a nice little beat … earnings also beat expectations ($1.08 vs $0.84).  If the global economy is indeed accelerating as well as most pundits are saying, transports including CHRW should have the wind at their backs for the next several quarters.

CHRW – Weekly Chart

The weekly chart shows how price is still above the weekly ATR support level … the trend strength histogram is still in the extreme trend strength warning zone, and that is the only thing negative I can say about CHRW’s charts.  Normally, an extended weekly chart would turn me away from getting long a stock based on a daily chart pattern, but the monthly chart is not extended so I think that any consolidation on the weekly chart could end up being shorter in duration than normal and indeed may  be complete when this daily bull-flag pattern breaks to the upside.

CHRW – 195 Minute Chart

If the daily chart is going to break the bull-flag pattern higher, it will need to first break the 195-min ATR resistance level at $93.61 … I have an audio alert set there, and I will revisit this stock when/if that ATR level is taken out.

Cheers … Leaf_West

TC2000 …

One of the traders that follows me has reached out to get more info on how I use TC2000 … I have been really busy on some personal business lately (and will be for several more months), but I have committed to get him copies of my TC2000 page formats over the next couple of weeks.

Because I thought it was timely with the more volatile markets we are now facing, and because I had a little bit of time today, i decided to write a PDF on how I use TC2000 for intra-day trading … I have posted it under the Education Tab as well, but you can access that TC 2000 PDF by clicking here.

Cheers … Leaf_West

Energy Has Found its Resistance Level …

I wrote two pieces about energy stocks and crude oil prices back on August 29th (click here) and on September 14th (click here).  The call on crude oil and energy stocks were pretty good if I do say so myself.  Both crude and energy stocks are at areas where I think they have found obvious levels of resistance.

Crude Oil Futures Contract – Daily Chart

Crude has made a beautiful 3-wave price structure out of a downward broadening price pattern.  My software is painting dark blue extreme trend strength warning candles with pink divergence dots right as price has pushed into the 1.272x – 1.618x extension target zone for Wave 3.  As good a spot for crude to begin a corrective pull-back price structure as any.

S&P Energy Index ETF (XLE) – Daily Chart

As I suggested back in late August, energy stocks made it all the way up into the median line of the upward sloping weekly broadening price pattern.  Crude and energy stocks are going to crush a lot of dreams here over the next couple of weeks I would think.

Cheers … Leaf_West

 

Has the Next Leg for Bonds Begun? …

When you look at the weekly chart for bonds, you have to think that maybe, just maybe, the great Central Bank manipulation to global interest rates is coming close to the beginning of the Great Unwind.  Here are some weekly charts to ponder …

20-Plus Year US Bond ETF (TLT) – Weekly Chart

Price is still contained within the weekly downward broadening price pattern … we are in the middle of the 7th consecutive “contraction” warning signaled by my software painting the weekly candles yellow.  What follows contraction?  Typically it is a new expansion phase …

The Price Momentum indicator has shown that price has been in a squeeze for 16 consecutive weeks, which is pretty unreal, and almost all bond portfolio managers are likely fast asleep at the wheel and not prepared for what is going to happen next.

The Moving Average Spread Indicator is looking like it wants to make a second, lower cross-over, which typically is the sweet spot where the best shorts are made.

Where is support for price inside the weekly broadening pattern?  It is around $106.50ish … which is about 14% lower than yesterday’s close.

What would a 14% drop in bonds mean for all those equity holders who are maxed out with their margin accounts??  Probably a little bit of pain!!

Cheers … Leaf_West

Crude is Right Near the End of this 3-Wave Structure …

Lots of people waking up to the move that crude and energy stocks have made since I talked about a possible swing low in energy stocks back on August 29th (see post here and here).  Like happens often, the market pundits and talking heads starting recommending the sector as we push into resistance levels/zones (i.e., the SLOT).  Here is how I see the charts …

Crude Futures – Daily Chart

Crude is pushing right into the measured 1.272x target for the 3rd wave of the move coming off of the low made this past summer … I see 3 nice waves to the move and three minor waves in the bigger wave 2 and the terminating wave 3.

So for traders that don’t trade crude futures, how do they capitalize on this end to what could be only the first leg higher in crude in a bigger commodity rally that could play out over the next several years?

S&P Energy Sector – Daily Chart

The light blue warning candles that my software is painting, warns traders of an extended move in price away from the slower moving averages … the “return to the mean” effect is telling traders to take profits here in the short-term and/or sell some short-dated at-the-money or near-the-money calls for XLE or ERX the leveraged bullish ETFs for the energy sector.

3x Bullish Leveraged Energy Sector ETF – Daily Chart

The January monthly $40 calls for ERX can be sold for just under a dollar today …. I will look to sell some of these as well as looking for intra-day moves to the downside, as the intra-day moves lower are likely to be bigger than the shorter-term moves higher.

Cheers … Leaf_West