Will/Can Small Caps Lead us to New Highs?

Many tv talking heads are calling for US small caps to lead us on to retest prior all-time highs … they say this basically because they think that the US economy is the world’s strongest and therefore, the asset class most exposed to the US consumer will be the defaulted to leader. Is that what is going to happen?

No one knows that ahead of time, but I default to the price structure of the market to tell me the likely path going forward. Let’s look at the small caps to see what the market says …

Russell 2000 Index Futures (RUT) – Monthly Chart

When you step back and look at the monthly chart, you can see a nice 3-wave price structure. The 2nd wave ended just past the 1.618x extension target, telling traders that we were in fact making a 3-wave structure and to expect Wave 3 to terminate in the 1.272x – 1.618x extension target zone. Price did just that.

If the monthly 3-wave structure is complete, then price will carve out a likely complex corrective pattern but in the end, find support in the SLOT drawn using the price anchors of the entire structure.

Let’s look a little closer at the price structure using the weekly charts …

Russell 2000 Index Futures (RUT) – Weekly Chart #1

Each of the 3-waves in the monthly price pattern formed smaller 3-wave structures inside themselves.

Russell 2000 Index Futures (RUT) – Weekly Chart #2

Having completed a nice looking 3-wave structure into the monthly extension target for the bigger 3rd wave gives me confidence that the monthly chart structure is in fact complete and that we are going to work our way down into support and not just pull-back slightly and then go on to make new all-time highs.

You will see on the daily chart below that the 2nd wave in corrective Wave-A made a nice push into the 1.618x extension target, which tells me that price is making a 3-wave price structure lower here in the first leg of the corrective price pattern.

After that is complete, we will bounce into bigger resistance (wave B) and then down into final support for the corrective pattern we are currently in.

Russell 2000 Index Futures (RUT) – Daily Chart

I expect the RUT to bounce with the rest of the market here … I suspect that resistance will be found/respected at around 1425 in the RUT futures contract and then price to head down to about the 1200 level. That level is right around where the bigger 38.2% SLOT support is, where the 1.272x target is for Wave-A’s 3rd wave and where the bottom of the broadening price pattern (see pattern below).

Russell 2000 Index Futures (RUT) – Weekly Chart #3

Bottom Line – No one can tell the future, but if you understand the structure of price waves, you can get a good idea at times about where price is likely to be headed. Based on my read of the wave structure for the RUT, I think we still need to head lower into a bigger layer of support before we can think about trying to go on to new higher highs.

Cheers … Leaf_West

Updated Road Maps – Dec 26/18 …

I’m pretty sure that we have put in the low for wave 2 of 3 for both the S&P500/ES and the NASDQ 100/NQ today in the pre-market. I tweeted out the following charts this morning pre-opening of the cash session.

ES Daily Chart – Tweeted Pre-Market Dec 26th 7:44am

The S&P500 Index futures contract made a bounce off of the lower support line from the broadening price pattern I have been following – it hit it to the exact tick!!

NQ Daily Chart – Tweeted Pre-Market Dec 26th 7:53am

The NASDQ100 futures contract almost exactly matched the ES futures contract bouncing off of the lower support line, but missed it with a slight overshoot.

AAPL 30 Minute Chart #1 – Tweeted at 11:19am

I have a fairly large position in AAPL and I have been watching the intra-day charts to for a time to make my final adjustments to my position and I did that between 11am and 11:15am. To me, the 5-min chart was getting ready to launch and the 30min chart looked like it was ready for an upward expansion phase.

The confirmation of the break of the 30min ATR resistance level at around 1:45pm was the final confirmation for me today that we were going to squeeze right into the close of the market.

AAPL 30 Minute Chart #2 – Tweeted at 11:34am

I think we are in a typical 15 to 20-day rally period now and just looking at overhead resistance in AAPL, I think the bounce should be quite nice.

So where is the road maps for the S&P500/ES and NASDQ100/NQ now?

ES Daily Chart

So I have shown on a recent blog post why I think that we were just completing wave 2 of a 3-wave structure … that means we will bounce into the SLOT resistance zone for that 2nd wave, and then head down to bigger support thereby creating that 3rd and final leg of this bigger corrective move off of the all-time highs.

My timing window is for around the 1.382x time slot (Jan 25th) and I would expect the median line from the broadening pattern to provide resistance at around the 2564 level.

Wave 3 would then be expected around the 2245 level and for support to be found at around March 18th.

NQ Daily Chart

Same 3-wave structure expected for the NQ … resistance should come in around Jan 28th and register at about 6652. Wave 3 support would then be at around 5684 and come in at about March 20th.

Cheers … Leaf_West

We are At Support …

OK … I just went through the 3 major indexes and made sure I had all of my charts in order – that includes extension targets and time extension targets. My read of the charts is that we are at levels that make believe that we are making support here in the markets. There is one question I have still about the ES/S&P 500 but with the other two main indexes more clear and obvious, I think I have to give some thought that the ES may also be at a major level of support.

I’m going to try and keep bias out and just analyze the charts and see how much evidence I have about being in possible support. I’ll start with the NASDQ 100 Index …

NASDQ 100 Index Futures Contract (NQ) – 240 Minute Chart #1

For the NQ, the first thing that jumps out at me is that we hit the minor-C (blue circle) wave time target which is 1.618x the time length of blue-A wave here today. The candle made today in that time slot was a large emotional one and it is a dark blue candle which my software does when trend strength has entered into the “extreme warning zone”.

How about price levels … We slightly exceeded for the bigger C-wave (red circle) the normal 1.272x target level that ABC patterns typically terminate at. That’s ok because it is an approximate target anyways, and when I look at the price extension target for the smaller c-wave (blue circle) we again finished right near the expected level as well.

The smaller c-wave (green) of the last move into support has formed 3 waves which I like to see as well.

Overall, I think with time and price hitting it so close here today, I am confident that the NASDQ has probably made a tradeable low today.

NASDQ 100 Index Futures Contract (NQ) – 240 Minute Chart #2

The above chart gives you a closer look at the last wave …

Russell 2000 Index Futures Contract (RUT) – 240 Minute Chart #1

The Russell 2000 to me looks like it is just completing the 2nd of a 3-wave structure. I say that because we are closer to the 1.618x target that 3-wave structures hit with their 2nd wave than we are to the 1.272x target that you see with ABC’s.

Also, this latest move lower is an “extended” wave structure, and by that I mean that it exceeded the 1.618x target and extended down to the more emotional 2.272x target level. That emotion makes me think that we are just finishing wave 2 of 3. While not exactly at the bigger 1.618x target level, the timing window was only off slightly, having predicted a low made in the overnight session last night – it makes sense that all of the markets bottom relatively close together during the regular cash sessions.

Russell 2000 Index Futures Contract (RUT) – 240 Minute Chart #2

So even though the NASDQ 100 looks to have completed an ABC, I still think it will fail in resistance and make the next leg lower in its corrective pattern … that move lower will coincide with the RUT’s move down into wave 3 support.

S&P 500 Index Futures Contract (ES) – 240 Minute Chart #1

Ok, the S&P 500 Index is the one where I have less confidence that we bottomed in all the indexes today … let me explain.

If the ES completed an ABC corrective pattern to complete the first leg lower in this corrective pattern from October’s all time high, then price should have found support around the 1.272x extension target. Again, that is an approximation only so traders should not get hung up on an exact hit.

So I’m a little concerned that we overshot the 1.272x target, but if all of the other evidence tells me we completed into support then I am ok. The problem here is that it doesn’t all line up as well as it does for the NQ and the RUT.

Notice the time target … the 1.272x target is for Dec 23rd between 6pm and 10pm (that is the overnight session this coming Sunday). The RUT and the NQ hit their 1.618x time targets so well, I would have preferred that the ES did as well. The 1.618x time target window is not until Dec 27th during the 6pm-10pm window.

Also, the wave structure in this last leg down (blue circle) is hitting the 1.618x level which tells me that this leg is likely a 2nd wave of a 3-wave structure i.e., the move lower is not complete. Let’s look closer so I can better explain …

S&P 500 Index Futures Contract (ES) – 240 Minute Chart #2

I have drawn a 3-wave completion down to the bigger 1.618x target which would make the ES a 3-wave structure like the RUT. The bounce from support would find resistance along with the other indexes and then fall lower to complete the 3rd wave.

S&P 500 Index Futures Contract (ES) – 240 Minute Chart #3

So I think that it is very possible that the ES will need to complete its move into support early next week, which will be complicated by the Christmas holiday. Nonetheless, it fits better timing and price wise if I consider it a 3-wave structure that is yet to complete.

Bottom Line – The NQ and RUT are in support. The ES may be very close but not quite – I am hesitant to hold out on the ES because the other two are ready. If the RUT and NQ start to make moves out of support, I will assume that the ES/S&P 500 pattern “failed” to complete, which on its own is very bullish, and could lead to a big move higher very quickly.

Cheers … Leaf_West

Roadmaps and Price Structure …

I was reviewing my SPX/NDX/RUT road maps and printing out my charts when I realized that I had made a pretty simple mistake when talking about price structure.

Firstly, when an ABC correction completes it typically does so at around the 1.272x price extension level. When a move pushes beyond that 1.272x level down to the 1.618x level, then that suggests price structure is morphing into a 3-wave structure and the 1.618x support is only for the 2nd wave.

That is a big error that I was missing … I have had several health issues that I am dealing with etc, but that is no excuse for making that oversight.

I still want to see 3 waves to the current corrective leg down and therefore I think that the ES and the NDX could end their final push with just small minor new lows below yesterday’s level. The RUT looks like it will push down to the 1.618x level and therefore its bigger picture is a 3-wave move into more major support later next year sometime. The SPX/ES and the NDX could still be a bigger ABC if we do not push down to the 1.618x targets and find support around the 1.272x’s.

My timing windows are still valid I believe, but maybe the third minor waves of the current move lower will not amount to as much downside as I originally thought … it could and if that were to occur, then the SPX/NDX would also, in my eyes, be confirming a 3-wave structure for the bigger corrective move off of the all-time highs from earlier this fall.

Sorry for the confusion.

Cheers … Leaf_West

Updated Russell 2000 Roadmap – December 20, 2018 …

To finish off my roadmap work, I’ll now look to small caps and the Russell 2000 Index. For a better, more detailed look at why my wave structure is pointing me this way, review my ES roadmap (click here).

Russell 2000 Index Futures Contract (RUT) – 240 Minute Chart #1

So it looks to me that the RUT is making an ABC correction, and that yesterday we likely completed the 2nd minor wave of the final C-wave move. After a minor bounce, I would argue that we need to head down to the 1.618x extension target to complete the entire price structure.

Russell 2000 Index Futures Contract (RUT) – 240 Minute Chart #2

A closer look at the C-wave shows me that we have likely only completed two of the three waves you typically see in a C-wave. Therefore, I think that the bounce out of yesterday’s low is likely to find resistance in around the 1422 level before flushing down into the C-wave low at around 1280.

Russell 2000 Index Futures Contract (RUT) – 240 Minute Chart #3

The C-wave timing window is similar to the one in the ES and the NQ … Wave C is often 1.0x the size of the A wave, and that would put the expected timing window at the January 2nd during the 6pm – 10pm candle.

Cheers … Leaf_West

Updated NASDQ 100 Roadmap – December 19, 2018 …

I went through much of my more detailed thoughts about wave structure of the current correction in my earlier blog post about the S&P 500 (click here) so I won’t spend too much time stating why I think the NASDQ wave structure is the way I currently see it.  I will skip directly to the charts …

NASDQ 100 Index Futures Contract (NQ) – 240 Minute Chart #1

Again, either my current read is right, or its not worth the time and effort to read/write it …. therefore, I won’t take this analysis any further than to look at my target for the current leg to complete into support in terms of time and price targets.

The same wave thoughts work here for the NQ as it did in my earlier ES analysis … I am looking for a minor bounce out of today’s low and then a push down to the 1.618x price target.

Note that the timing window for the NQ is a little tighter than the one I have for the ES … it appears that the NQ is likely to find it final support level before the end of the calendar year, but at a level that is about 8% lower than today’s close.

Cheers … Leaf_West

Updated S&P 500 Roadmap – December 19, 2018 …

Ok … so where the hell are we in this whole correction thing?  One of the reasons why I always try and see where we are in terms of wave structure is to try and help me get some perspective … emotion affects every trader, and by stepping back and trying to determine where the wave structure tells me we are at, I hopefully can make some good trading decisions.

Let’s look at the most important index, the S&P 500 … I will start by stating that my common thought through this whole post-Oct correction was that the correction was coming off of an important all-time high in the market, and therefore, it made sense to expect the correction to be multi-legs/complex rather than just a simple ABC correction.

I think that odds are in that the high earlier this year is the highest level we see for a couple of years (minimum) so I want to make sure that I that I give this correction enough respect to not expect the norm.

Having made that warning, here are my charts …

S&P 500 Index Futures Contract (ES) – 240 Minute Chart #1 

I call this my bullish or “Bull Tard” scenario.  No disrespect, but so many people/perma-bulls are calling for an Xmas rally that I have to think that would be too easy for Mother Market to give all of us.  Besides, I like to see completed wave structures before I get too confident about a reversal in price direction.

What can I say about the above chart?  Well, I can definitely see a bigger, more complex ABC structure building.  And if I look at the timing extension target window, an argument could be made that the minor C-wave of the bigger C-wave is right at the logical time window extension target … i.e., the minor C-wave is equal in time to 1.618x the minor A-wave (exact target is the 2am – 6am eastern time zone candle).

However, when I look at the bigger C-wave, I am not seeing what I typically would expect to see in terms of price structure.  C-waves are typically 3-wave structures and a quick glance at the above bigger C-Wave only reveals what appears to be 2 waves so far.

If I’m wrong, then price should bounce from about today’s low, and take out the SLOT resistance zone on the way to retest the all-time high.  If I’m right, then after a minor counter-trend bounce, price will push down once last time to complete the minor C-wave and the bigger C-wave.

Also, C-waves typically terminate closer to the 1.618x extension price target and not right at the 1.272x target level at the chart above suggests (especially for larger more complex price structures).

Here is what I believe is a more realistic road map for the ES contract …

S&P 500 Index Futures Contract (ES) – 240 Minute Chart #2

Ok, so let me tell you why I think the above chart makes more sense …  first, I want to see a 3-wave structure for the bigger C-wave and for the smaller C-wave of that bigger C-wave.  The above chart gives me that.

In terms of a timing window … when I look at the final bigger C-wave, I would expect the smaller C-wave to be at least 1.618x (and possibly 2.0x) the time length of the smaller A-wave.  The above chart paints a 1.618x and that 2.0x time target window.

The 1.618x paints right at the 6pm-10pm window on December 27th while the 2.0x is right at the Jan 3rd 2am-6am time slot.  Time windows are approximations but they often paint pivot points pretty close to bang on.

If the ES contract is to complete a 3-wave structure, I think there is a good chance that we will get down to the 2392.25 level.  Does that level make sense at all when you step back and look at the ES from a bigger time frame?

S&P 500 Index Futures Contract (ES) – Daily Chart #1

As you can see from the above daily chart, my read of the daily price stucture for the ES is that we just completed a large 3-wave price structure at the October 3rd high … wave rules state that traders should expect a consolidation/pullback that will find support in the SLOT support zone drawn using the entire move higher.

That means that the ES should make it back probably to the 61.8% level or 2240 … yikes!!  That is about 11% lower than today’s close.

Typically, the first push lower will find support just outside the SLOT support zone (i.e., just before the 50% level at 2375).  Here is how I would expect price to complete the correction into the SLOT.

S&P 500 Index Futures Contract (ES) – Daily Chart #2

I’ve drawn the above waves using the 2392 and Jan 3rd target for the end to the bigger A-Wave (i.e., the corrective wave we are getting close to finishing here now).

The corrective bounce should find resistance around the 2737 level (61.8%) and then complete down into bigger support at around that 2240 level.

This is all big sky thinking, and we have to see how this first wave down completes before we can start thinking about an even bigger support level.  Nonetheless, I think that the October high in the ES is a very important level that will stand as the high for quite some time.  The correction off of that high has to be complex and painfull … I think the above road map fits that type of scenario.

Bottom Line – I think that we are close to support for the first leg of the large and complex corrective wave off of all-time highs.  Unfortunately, I think the low from today was just the end of the second wave in the last leg into support for that bigger first wave lower.

We are likely to see some type of bounce, and hope for an Xmas rally before all hope is washed out with a flush into around that January 3rd time window/2392 target level.

Cheers … Leaf_West

Addition to Tax Loss Portfolio … ROC

Earlier today I started a new tax loss long position in ROC.  As I have noted in many of my early postings this year, ROC has shown early strength as price bounced off of its early December lows.  I have been monitoring the pullback to see if I could get a starter position in place.  I’ve done that today by starting a long NOC Jan $250 call @ $12.70.  Here are the charts I have been watching …

NOC 195-Minute Chart #1

As you can see on the above chart, NOC made a nice 3 wave pattern into the early December low … we have pulled back from the first move higher out of that low and currently, price is holding the SLOT support zone.

I noted on the chart that this morning’s first candle made a possible reversal candle … that is where price pushed to a new low and then reversed to close above the low of the prior candle.  For the 195-min time frame, I typically like to see “three consecutive new lows” when putting in a possible reversal candle – we had that with NOC this morning.

The current 195-min candle is an inside candle, and if this morning’s candle is a true reversal candle, this morning’s low will not be taken out ($254.28).

NOC 195-Minute Chart #2

You can see on the relative strength vs the S&P 500 Index chart on the right that NOC is showing the type of relative strength I like to see if I am looking for a reversal trade out of a possible end of price structure low.

NOC 30-Minute Chart

I’ve included a Volume Profile analysis on the above 30 min chart to show the level that price needs to get above to give me additional proof that the December bottom is likely in for NOC.  Once we get above that level, I will be looking to increasing the size of my NOC trade via options and likely common stock as well.

Cheers … Leaf_West

2018 Tax Loss Candidates – Week Ending Dec 21, 2018

Dec 21st Update – I think I heard earlier this week that December 2018 so far is the worst December in the S&P since the great depression of the 30’s. I’m going to keep track of my tax-loss data for data sake, but I’m going to focus more the next couple of weeks on the overall market and the big momo stocks that could give us some great bounces out of support rather than focusing too much on tax loss candidates.

Instead of updating my blog daily/weekly, I’ll just publish a final 2018 analysis after the January OpEx.

Here is the new low list as of Friday’s close …

Here is the sorted list of the watchlist based on last week’s performance ...

Dec 20th Update – Stocks continue to sell-off making the tax-loss idea a tough one to get traction with. New lows hit a high for the month that I have been monitoring them. Maybe OpEx helps this market to complete the heavy selling. We’ll see …

Dec 19th Update – FOMC rate decision today did little to help stocks bounce off of their December lows.  The tax loss candidates that I am monitoring continued to generally grapple for a bottom to trade off of.

No bottom evident yet for the majority of the tax-loss watchlist.  The only stock that looks like it probably put a definitive bottom in is GE, and I am not going to trade that name.

GE is now 15% off of its low.  GIS reported earnings today and despite a revenue miss, it bounced and that stock could have seen the worst now that it has reported and there were no major surprises.  My son Paul bought some stock today after the earnings announcement (he works with GIS here in Canada).

This sorting of the watch list is based on the 5-day relative strength vs the SPY ETF.  Nothing really jumps out to me as we have not made the kind of lows I would like to trade against.  We will see what happens the last two days of this week – Cheers.

Dec 18th Update – I posted a blog earlier today about adding a position in NOC as part of my tax-loss portfolio (click here).  Here are the charts for today …

Another day of new December lows for this watchlist … a little better than yesterday, but I think the rest of December will be determined by the FOMC and their announcement tomorrow.

Watchlist sorted by the biggest bounces off of each stocks December lows … note that GE is now the biggest bouncer.  I don’t plan on trading that one since its price is so low, and I would have to trade a ton of shares to make it worthwhile.

The above list sorts the stocks by the ranking since Nov 30th close … NOC is the best performing stock of the list having lost only 1.13% since November 30th.  No stock is higher than its Nov 30th levels.

The above is my monitoring the watch list for possible reversal candles on the 65m, 195m and daily charts.  NOC made a second candle confirmation of a possible 195min reversal candle, and HIG made a possible 65min reversal candle with the last candle of the day today.

Tomorrow should be an interesting day ….

December 17th Update  –  Another day another beating of the bull tards … new December lows were seen in 75% of my possible candidates.

Here is the data at today’s close …

I created a new sheet to watch for/identify possible reversal candles on the 65min, 195min and daily time frames.  Here it is …

The only possible reversal candle that my screens pop up today is BHGE on the 65min chart.  No changes to my two holdings (VLO/APC) … maybe once we get the FOMC decision the market can bounce.  If not, then maybe it gets nice and ugly into year-end and relief is only seen that last day or two before the end of the year.

Cheers … Leaf_West

AAPL Update – Dec 14/18 …

Lots of hand wringing with the FAANG stocks and other tech market darlings.  I continue to own AAPL Jan $160 calls and short AAPL Jan $160 puts as I expect AAPL to make a nice tradeable bottom.  I added to both my positions today and I am full-up with the calls but will add to my short put positions into year-end if we can get more weakness next week.  Here are my charts …

AAPL – 195 Minute Chart

I still think we have already or are in the process of making a final 3rd-wave low in AAPL.  I doubt we make higher highs, and I think that the SLOT resistance will stop any bounce over the next couple of months.

I see lots of positive divergence in price momentum (panel #2), MA Spread (panel #3), DI+ (panel #4) and weakness in the trend strength histogram (panel #5).

AAPL – 30 Minute Chart

To me, the $163.33 low in AAPL was made with an unclear wave structure … that is why I am not definitive in my conclusion that a 3rd wave low has already been made.  It could have been, but I do not see confirmation via an obvious completed wave count.

I extended the last bounce off of that $163.33 down to a new minor low … the 1.272x extension target shows us a possible price of $160.95.

Cheers … Leaf_West