Buying a long stock position an auto maker right now doesn’t seem to make much sense at first blush … however, I can’t help myself but starting to like the longer-term set-up of Ford here now. I bought a 1,000 shares so that it stays on my radar going forward. Here are the charts …
Ford – Monthly Chart
December was a large and rather nasty looking red candle for Ford on the monthly chart … the three subsequent monthly candles are all inside candles and to me we could have made a longer-term floor to trade against with that December 2018 low. Don’t get me wrong, the chart is not screaming a longer-term bullish move, but I am always on the look-out for stocks that may have been washed-out on the bigger time frames.
Ford – Weekly Chart
The weekly chart for Ford is actually showing a nice pennant/triangle formation. Generally, these type of price patterns are just consolidations that resolve themselves in the direction of the bigger trend that existed going into the consolidation phase – that implies another move lower in Ford. That could happen, but if it did, I think that could actually be the final thrust lower on the monthly/weekly charts for some time to come.
Ford – Daily Chart
So if price is going to break-out of that weekly consolidation pattern, we should be able to see the signs of that move here on the daily chart first. To me, the daily chart is more bullish looking than it is bearish looking.
Bottom-line … while Ford may not be finished with its move lower on the monthly/weekly charts, it looks to me we are near if not already there. I started a small position to keep a closer eye on this one going forward.
Stock market bulls have slowly come to the realization that the global synchronized growth that they were counting on since the beginning of 2018, has fizzled out and their only remaining hope for higher S&P 500 profits/PE multiples is the domestic economy.
Since small cap stocks in the US are widely acknowledged as the best barometer for the health of the domestic US economy, it makes sense for equity investors to pay attention to what small caps are doing here recently … let’s start with the bigger picture and then work our way down to the daily chart.
Russell 2000 Small Cap ETF (IWM) – Monthly Chart
So to me, the IWM looks to have completed a 3-wave pattern right at the 1.618x extension target back in August 2018 (ahead of the Sept top in the SPY). The move off of that possible 3rd wave high looks impulsive to me, so I think that Wave 3 to the upside is almost certainly complete. Let’s see if the weekly chart gave a complete wave pattern into that possible monthly Wave 3 high.
Russell 2000 Small Cap ETF (IWM) – Weekly Chart #1
Again, it looks like the August 2018 high completed a 3-wave price pattern on the weekly chart … that makes me completely confident that the monthly chart’s price pattern has completed and that we are now in a corrective pattern on a monthly time frame.
That monthly correction will need to make its way down into the SLOT support zone identified above, and that move lower will take the form of either an ABC or a 3-wave price pattern. Since one of these two patterns is now a certainty, traders should look for support at either the 1.272x (in the case of an ABC move) or the 1.618x level (if the move lower morphs into a 3-wave price pattern).
Where are those levels, and how do they relate to the bigger monthly SLOT support zone?
Russell 2000 Small Cap ETF (IWM) – Weekly Chart #2
Again, let me restate that I am very confident that the monthly chart has completed a 3-wave price pattern to the upside and therefore I think we need to correct that move in the SLOT support zone as drawn above … that implies that one way or another, price is going to get at least to $103.82.
I state that minimum target because if the current move lower finds support at the 1.272x extension target and “solidifies” its characteristics as an ABC move, that to me would be only the first leg of a bigger corrective pattern – i.e., price would bounce from that 1.272x level but that move higher would fail in SLOT resistance before making another move lower into the SLOT support zone.
If price breaks below the 1.272x target level at $112.87, then I would look for price to find support at the 1.618x level (or $96.41) … that type of move would be inside the SLOT support zone and in theory be enough of a correction to have completed IWM’s monthly corrective price pattern.
Even if price were to get to that 1.618x level, that does not guarantee a move back to re-challenge all-time highs, but it does imply a bigger, and a more swing-tradeable bounce for traders to enjoy.
Russell 2000 Small Cap ETF (IWM) – Daily Chart
The daily chart saw price break below its March 8th pivot low this past Friday … everything on the daily chart to me looks weak, and I think the weekly chart is driving the bus here now in the IWM. That means that the daily fib supports shown above will not hold as support and that we are going to break below the December 2018 pivot low. I would expect the S&P 500 and NASDQ 100 Indexes to follow suit as well.
The fear of missing out is likely soon to be replaced by investors’ fear of capital losses … we should be in for a fun 2nd Q 2019.
It is pretty clear that the bounce off of the Dec lows is a 3-wave structure. From our price structure rules, what do we know about where wave 3’s terminate? They typically terminate at around the 1.272x extension target drawn off of wave 2 … that would make our target zone around 7016.50 for the NQ contract.
What about a time window? Typically wave 3’s will be equal to 50% -61.8% of the time taken to complete wave 2’s … that would make our window from 10pm last night up until 2am tonight.
The high made today in the NQ was made 9:34am and it was at 7038.75 … so we have made what looks like a complete 3 wave structure at around the typical price target in the time window that would normally occur – what about the actual look of the final 3rd wave? That typically will also form a smaller 3-wave price structure.
So it appears to me that price has completed a smaller 3-wave price structure in the final bigger wave 3 … there is nothing else that I would normally expect to see when looking for a logical place for resistance to hold.
The Fed has folded and therefore I think my bigger thesis for 2019 (weaker US$ and higher gold prices) has a good shot at being pretty bang on.
Trade-Weighted US$ – Weekly Chart
The Fed doesn’t see any inflation, but if the US$ loses 6%+ inflation is sure to be more of a story later in 2019.
Trade-Weighted US$ – Daily Chart
It looks like the bounce into resistance is complete and that the US$ will restart its move lower here now that the Fed has cowed to equity bulltards.
Gold Miner EFT (GDX) – Weekly Chart
Gold and gold miners are headed higher, I believe, in 2019. Is the move an ABC or a 3-wave structure? It doesn’t matter as both target levels are much higher than the current price.
Gold Miner EFT (GDX) – Daily Chart #1
The mover higher out of the September 2018 low looks like it made a perfect end to the 2nd wave with today’s price action – we stabbed the 1.618x extension target perfectly with the end to what looks like a quick emotional move higher.
So if that was the end or the beginning of the end to wave-2, then traders should be looking for a pullback into SLOT support around the $19.90 – $20.40 levels. Then we push higher to make an end to the first move for our journey higher.
Gold Miner EFT (GDX) – Daily Chart #2
The TC2000 chart for GDX shows the extreme DI+ reading with today’s push.
Bottom Line – Nothing that I have seen so far in 2019 makes believe that GLD and GDX/NUGT are not going to be good swing trades. Monitoring the wave structure should allow traders opportunities to increase/decrease weightings as we go forward. Don’t get too cute, and make sure you maintain a healthy core weighting.
The emotion into the December 26th low and the large/strong 3 wave structure formed during the bounce from that December low confirms in my eyes the following price structure of the correction from the October 2018 high …
With the push today above the January 18th high (wave 2 high), it looks like we are completing a 3 wave structure into the down sloping line drawn off of the prior highs right around the 50% retracement level drawn using the Oct highs and the December lows as the anchors.
If that read is correct, we should be heading down into SLOT support on the next move. That would be a corrective wave, and will be followed by another push higher, possibly right into the 61.8% resistance level around 7000 on the NQ.
The above chart gives a better look at the 3-wave structure of the bounce from December … could we have made the high for this first bounce on the very day that the Fed gave the market everything it was crying about? It sure looks like it to me.
Further to my more indepth road map on the NQ futures contract, it makes sense to see how the other major indexes are doing. Due to their rough similarity, I am assuming for simplistic case that the pattern for the ES and RUT are also ABC’s even though I am not 100% totally convinced they are because of the 1.618x extension target levels hit by the December lows.
This analysis is more about the bounce and where we go from here …
S&P 500 Index Futures Contract (ES) – 240 Minute Chart
So it appears that we are in the bigger SLOT resistance zone drawn off of the top of the October highs down to the December lows. It also looks like we are near the completion of a 3-wave price structure for the bounce off of those Dec lows.
Russell 2000 Index Futures Contract (RUT) – 240 Minute Chart
The RUT is in the SLOT drawn off of the November bounce highs down to the Dec lows … we are also nearing the downtrend resistance line drawn off of the prior two highs.
Bottom Line – it looks like it makes sense that we are at or very near a logical resistance spot for the major market indexes.
So no one said trading was going to be easy … I try as best I can to follow my chart indicators to confirm/raise suspicions about my price structure reads, and adapt on the fly as necessary. I thought it would make sense to review my read to-date, and try and see what the charts are suggesting from here.
Ok, the first snapshot should look back at what my last major read was.
So I have gone over in prior blogs why my read was what it was … suffice to say, when price extends to the 1.272x extension level, that is almost always the end of an ABC structure, and when it extends down to the 1.618x extension target, the price structure is almost always wave 2 of a 3-wave structure.
You can see that because of where the Dec low pushed to (i.e., the 1.618x target) I thought we were in the process of completing only the 2nd wave of a bigger 3-wave corrective structure. We will look at the bigger structure in a bit, but that is why I thought what I did.
On a smaller wave scale, it appeared at the time, that the Dec lows had not completed the smaller 3-wave structure that was making up the bigger 2nd wave. As mentioned, counting smaller waves is inherently more tricky and often less obvious … I make many errors when trying to determine smaller time frame waves because of the natural minor movements of price during these smaller time frames.
Long story short, I thought we would bounce off of the Dec lows and then push back down to make a new minor low just below the Dec lows. My software was painting dark blue extreme trend strength warning candles with pink divergence dots, and often price makes one last little push to new minor lows when these dark blue candles appear – not always, but quite often they do that one last push to extinguish the selling pressure.
So the bounce off of the Dec lows has been a V-bounce which are pretty rare … less rare during the whole QE-fed program of the past 10-years, but they are pretty rare nonetheless.
You can probably see the look of a 3-wave structure in the bounce off of those Dec lows and how price has pushed throught the SLOT resistance area I was monitoring. Price has just pushed into the resistance line drawn off of the tops of the corrective price action so far since the Oct high.
Because of the strength of this bounce off of the Dec lows, I think it makes sense to look at the entire corrective move as a possible ABC, and therefore, the lows may be in for the next several months. I don’t like to assume that something rare has occurred, but the emotion entailed in the December selling may have been something that caused a rare extension in a wave structure.
Before we go further, let’s look a little closer at that move into the Dec lows and the bounce seen since then …
So again, trying to count the smaller waves inside bigger structures is often tricky … I can see 3 smaller waves down into the Dec low, but you could also argue, like I have done previously that there were only 2 smaller waves.
Because of the strength since the Dec lows and the fact that we busted through the SLOT resistance zone I was watching, I think you have to argue that there were indeed 3 smaller waves and that price structure down into the Dec lows was complete … the only question is whether or not the Dec lows was the end of a C-wave and therefore a possible end of an ABC corrective pattern off of the Oct highs. If it was, then there is a chance that we are going to retry/retest the Oct all-time highs.
Or was the bounce out of the Dec lows “extra” strong because of the emotion involved in the late-month flush, and therefore, price was able to get through the SLOT resistance to the more important down trending resistance line off of the prior highs seen in the corrective pattern so far? If that is the case, then price could still be headed down to make a complete 3-wave structure that would make more sense considering where the Dec low was made at in terms of extension targets (i.e., at the 1.618x vs the 1.272x seen at wave-C lows).
Or we could be making an even more complex corrective wave off of those all important all-time highs made in October – remember, if those October highs were indeed the end of the bigger weekly 3-wave pattern off of the 2009 lows, then traders should not be surprised by a complex corrective structure off of those highs. I just don’t think that a simple ABC down to the Dec lows is complex enough to get the whole correction complete and we are therefore about to head higher on a new bull run to new highs.
Here is a possible look at what might be ahead of us …
So as shown above, anything really is possible ahead of us … all we can do is monitor the waves as they unfold, and then anticipate where we are heading to next.
All I can say right now is that I think we should be at a logical area of support, it appears we have a complete smaller 3-wave structure into this upper trend line, and we did that right into a monthly OpEx. I have noted several times on tweets and blog posts that price will often pivot right around OpEx expiry dates – if that happens here again in January 2019, then it would make perfect sense because of the look of a complete wave structure, extension targets getting hit, and finally, pushing right into that upper resistance line drawn off of the corrective pattern’s highs.
If we have made a top, then it make sense for price to at a minimum, head down to SLOT support … the 61.8% level is at 6205.50 currently. Price could bounce off of this level and then make the next bigger push higher, or it could fail at bouncing and we head lower to complete the bigger 3-wave price structure that I was originally calling for.
Bottom Line … I’m looking for a pull-back to begin anytime here, and we will see what happens as we move into SLOT support.
S&P 500 Index Futures Contract (ES) – 60 Minute Chart
The bounce in the ES contract looks almost identical to the NQ contract that I wrote about earlier today.
Russell 2000 Index Futures Contract (RUT) – 60 Minute Chart
The RUT is right at the 61.8% resistance level in the SLOT.
If my bigger wave count is correct, then today’s move higher in the equity markets looks like it would make perfect sense to stall out and then head lower to complete the bigger 2nd Wave on my corrective pattern road map.
Price is getting close to a potential turning point …
NASDQ 100 Index Futures – 60 Minute Chart #1
Sometimes trying to guess too early the shape of a corrective wave can cause you to draw the right conclusion. Typically I like to see a break of the 60-min (or 65-min if using TC2000) ATR levels before I begin to try and count waves to see if a wave price structure can be determined.
The 60-min ATR support for the NQ was broken today so I am now updating what I think the wave count is most likely for this bounce into SLOT resistance.
As you can see, price is just above the 1.272x C-wave extension target and below the upper level of the SLOT (i.e., the 78.6% level). Note that this is also very near to the median resistance/support line of the broadening price pattern I have been following for the NQ futures contract.
From a time perspective, the C-wave will be equal to 100% of the A-wave on the 3pm-4pm candle today (January 10th) … so to me timing and price finding resistance in the SLOT here makes sense.
Now all I really need is to see if I can see an obvious conclusion to a smaller wave structure (i.e., the waves inside of the final C-wave move higher).
NASDQ 100 Index Futures – 60 Minute Chart #2
To me it looks like we could be making the typically expected 3-minor wave C-wave … the high of my 2nd wave is 6645.00 – the high so far today is 6628.25.
One thing to keep aware of is that waves in smaller time frames often fail to complete, in part, because of the stronger forces of the bigger time frame price structure. What I am saying is that if price fails to make a new minor 3rd high for the C-wave, it is still possible that the move higher was actually completed today with that failed iii-wave.
Bottom Line … maybe the bad retailer announcements today along with American Airlines taking down estimates are enough to cause price to fail in the last little leg higher. Be prepared for anything.
I have not seen anything to make me think that my bigger wave count is incorrect, so I am still looking for resistance to take hold.
I spent some time yesterday explaining my roadmap for the NASDQ 100 Index futures contract (NQ_F) (click here). If my current read is correct then price is near completing its move up into SLOT resistance.
NASDQ 100 Index Futures Contract (NQ_F) – 15 Minute Chart
As mentioned in yesterday’s blog post, the Point of Control for all of the trade action during the minor wave 2 lower was at 6516.50, which was also right around the 61.8% Fibonacci resistance level in the SLOT. As you can see in the above chart, price has made the typical 3-legged move during what I am thinking is the “C” wave of the corrective bounce into the SLOT.
If my read is right, then price is going to fail at moving materially higher from here before it turns lower to make what I think will be a minor low below the Dec 24th low. That 3rd wave low will complete the bigger Wave 2 and setup a bigger bounce into a bigger level of resistance. From there, I think we head lower one more time to complete the 3-wave corrective pattern off of the recent all-time highs.