Bonds into Support as Stocks Push into Resistance …

My read of the current price structure for the market-leading stock sector (tech or the QQQ’s) match up pretty well with my read of the price structure for bonds … bonds are pushing into a logical support SLOT zone while the Q’s push into a prior high and a logical termination zone for the 2nd of 3-waves I am looking for from stocks.  Here are the charts …

US 30-Year Treasury Bond Future Contract (ZB) – 195 Minute Chart

I have been calling this move in bonds pretty well for the past couple of months … I think that we should see the long bond find support in the SLOT support zone – we are right at the important 61.8% that often acts as support/resistance during corrections.  The FOMC meets June 12th and 13th, and bond moves often happen/begin around those FOMC dates.  Maybe bonds bounce around here for about a week before beginning what I think will be either a Wave 2 or Wave C move to the next level of resistance.

NASDQ 100 ETF (QQQ) – 195 Minute Chart #1

Everybody is pretty hopped-up with the break by equities out of the big multi-month consolidation patterns they had been making.  When something is so obvious that “everyone” sees it I begin to worry about a massive failure/fake-out move … aside from that minor concern of mine, it appears to me that the Q’s are pushing right into an obvious level of resistance for a Wave 2 of a 3-wave price stucture.  Wave 2’s typically fail in resistance right at the 1.618x extension target … we are right there for the Q’s now.  To top off that obvious target is the fact that we are also pushing right into a prior pivot/all-time high – what are the odds that we blow right through that level and tack on another 5% or so without pausing??  I think it makes more sense to see a fake-out and consolidation/corrective price action which would set-up a more sustainable break to new highs.

NASDQ 100 ETF (QQQ) – 195 Minute Chart #2

So if my read is right, then the Q’s are making a push this week that could lead into an important pivot high followed by a pullback into SLOT support.

Cheers … Leaf_West

Bonds – Are We at Near the End of this 3-Wave Structure??

I have been waiting for the TLT to break below the low from February 21st to possibly begin the completion of its current bigger time-frame price structure … today price broke below that $116.51 level and I think the next swing trade in bonds will be to the upside.  Here is what I am seeing. Continue reading

Where the Rubber Meets the Road …

Yesterday I took a look at the break to a new minor high in the tech-heavy QQQ ETF and mapped out three possible scenarios for price as we go forward.  Earlier today I looked at both the SPY and IWM (small-cap stocks) ETFs … small caps are actually breaking out of their consolidation pattern and late on Monday, price on the 195-min chart flipped from yellow/contraction warning candles and signaled the beginning of a new trend expansion phase.  The SPY chart is the index that I like to follow the closest to track what the “overall” market is doing, and it is lagging the QQQ and IWM – we are still below the prior minor pivot high, and we are still in a trend strength contraction zone.  Here are the 195-min charts …

IWM – 195 Minute Chart

SPY – 195 Minute Chart

Bottom Line … small caps will be important to watch, but the SPY is the one that matters most I believe.

Cheers … Leaf_West

Where to Next?

The NASDQ 100 Index has just broken above an important level and we should see in short order, what the market has in store for investors.  Here is the daily chart and three possible roadmaps for the tech market …

NASDQ 100 Index ETF (QQQ) – Daily Chart

The April 18th pivot high for the QQQ was $167.00 … that level was taken out with today’s price action.  By doing so, you have taken out an obvious prior high/resistance level, and one that the entire market will take note of.  Many algorithm trading programs will attack breaks of obvious resistance/support levels, and that is why you often see the market break to new minor highs/lows before reversing.  In essence, the market traps traders playing the initial break, and you see those “weak hands” get rinsed out of their positions by the stronger, more sophisticated trading entities.

So basically, now that price has broken above the prior resistance level, we are either going to fail and reverse, or we are going to gather momentum, and have the MOMO traders jump on this latest move and we should gain steam as we march towards prior major highs.  I have labeled this bullish scenario as #1 on the above chart … the move off of the last low will need to push through the “ABC” extension target zone of $170.05 – $173.69 if we really are headed to new highs.  Typically, I would expect for price to make a new minor high, and then pull-back slightly to test that break – if the move is real, it will trap sellers at the high and steamroll through them.

Scenario #2 is the bullish scenario I would rather see unfold … in this case, price will fail at this break of a prior pivot high and head down to SLOT support.  From support, price would begin moving higher thereby trapping traders who think that a Heads & Shoulders pattern was about to confirm and price was about to head lower.  It is this outsized opinion and short position that fuels the bigger, more sustainable move to new highs.  In essence, bigger corrective moves prior to an attempt to break higher usually leads to a higher odds chance of that break succeeding.

For the possible bearish scenario, (Scenario #3) I would think that we need to fail here as price moves above the obvious prior minor high, likely in the extension target zone.  Price would then correct lower and slice through minor SLOT support at the $160.92 – $156.86 level.  As price breaks below the prior lows, there would be an outsized chance that price was just setting up an even bigger squeeze that could fuel a move higher, but more likely, this type of move would signal some bigger corrective pattern or even the beginning of a bigger trend lower.

Bottom Line … in any of these case, traders should be paying close attention to closing daily and weekly charts to see what type of move is confirming itself.  I will try and update what I see as we go along.

Also, note that my charting software is painting the past 4 daily candles yellow, which visually warns me that trend strength has contracted to the point where trend was now officially in the “Contraction” zone – what follows contraction?? Expansion does … should be an interesting next couple of weeks/months.

Cheers … Leaf_West

Ready for the Charts to Resolve Themselves …

It looks to me like the market is not sure what to do next …. earnings are expected to be great for the remainder of the year, in part because of the tax reform pushed through by the Trump administration.  The next corporate earnings reporting season begins in a couple of weeks, and with the first quarter’s OpEx getting behind us with the conclusion of this week’s action, I think that the market is going to resolve the mixture of signs that it is currently presenting us.

Here is what I mean by that …

S&P 500 Index ETF (SPY) – Daily Chart

The S&P 500 daily chart has clearly pushed higher of off the early Feb correction lows … while price has pushed up into resistance, the trend strength histogram has pulled back in a corrective/consolidation move.  That indicator is now in the Contraction Zone and after a contraction phase, traders should expect an expansion phase to follow.

Will price expand higher or lower … I think the market wants to go higher, but earnings and the marginal buyer of equities is going to have to help things out going forward.  Typically I like to see how the other parts of the market are doing to get a sense of which way the S&P 500 wants to go.  Before I do that, let’s take a look at the 195-min SPY chart.

S&P 500 Index ETF (SPY) – 195 Minute Chart

You can see more clearly that price has really only pushed up into the SLOT resistance zone, and has not really finished resolving itself yet.  The indicators included on this chart clearly indicate that bulls need to be a little careful here getting too big too quickly with their position sizes.  There will be a time to make bets for the next expansion phase, but right now is not the time, or at least that is how it looks to me.

NASDQ 100 Index ETF (QQQ) – Daily Chart

Tech stocks have without a doubt been the market darlings for quite some time now.  I won’t show them here in this post, but the FANG stocks don’t look like they are going to be able to lead the market here for the next little while.  Another sector of the market may need to step-up to the plate here for the next break higher if that indeed is what is going to happen.  The Tech Sector represents about 26% of the total market now so Tech is undoubtedly an important driver going forward.

Russell 2000 Index ETF (IWM) – Daily Chart

The IWM ETF has bounced up to the prior high … the next couple of weeks into earnings season will be an important catalyst for the small-cap index if price is going to break out sustainably into new-high price territory.

Cheers … Leaf_West

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

S&P 500 Painting Extreme Trend Strength Warning on the Weekly Chart …

The weekly SPX chart is painting a dark blue candle this week that signifies that the trend strength histogram has pushed above the 100 level and is therefore now in the “extreme” trend strength warning zone …

This is a big deal on a weekly chart – the last time the weekly SPX did this was in July 1995, which was about 6 months into the multi-year internet/tech craze.  There are lots of extreme trend strength warnings on moves lower, primarily because declines are more emotional than grinds higher in the market.

S&P 500 Index – Weekly Chart

So what does all this mean?  Has the S&P 500 just broken out higher out of a trading range and about to go on a 5-year rocket ship ride higher like the craze we saw back during the 1995 – 2000 time period?  Maybe, but I would argue that we are not just breaking out of a trading range here in late 2017.

I heard on CNBC this morning that the DJIA is on the way to finishing the current calendar quarter and register the largest quarterly gain ever in % terms as well as in the total points added.  I think also that I recently heard or read that 2017 is going to be the lowest volatility year on record.  All is good right?  Bitcoin is dominating the news, Trump is making American great again, and the new Saudi leaders are bringing back movie theaters to their country.

What could possibly go wrong in 2018?  It has to be a replication of the prior 12 months right?  ……. Right??  This mornings inflation numbers reconfirms that there is no inflation in the US (cough cough … except in financial assets) and therefore, there is a chance that the FOMC’s decision this afternoon is to stay pat, but to warn the markets, that they are data dependent and stand on guard against inflation if it were ever to raise its ugly head again.

My recommendation is for traders to not assume anything and to just stand on guard and watch price action even more closely this coming year.

Cheers … Leaf_West