At Least We Can Rely on a Strong Domestic Economy … Right???

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.

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

AMZN Update – October 19, 2017 …

I wrote an update on AMZN yesterday that raised the possibility of the stock making a possible Wave 2 high of a new possible trend or at best a Wave 2 high of a large sideways consolidation pattern (click here).  The stock is about $13 below where it was when I wrote that blog post and it looks like it is possibly testing a break of the weekly broadening price pattern that I have been tracking for AMZN.

You might say … whoop-t-do, price is breaking some imaginary price pattern!!  I say beware when price breaks price patterns, because it could be the early warning of a change in trend.  Here are the charts … Continue reading