The Fed money printing is certainly making for a challenging time for technicians and ellioticians as market distortions and price-discovery breakdowns are at historic levels.
I have never in my time trading been as challenged as have been since May. While I played the down wave from Feb highs to March lows easily and played the rally from close to the lows to early May (as I counted 5-waves up from the lows) - I must admit the rise since then has certainly caught me by surprise and most pros as a matter of fact.
I trade for my own account and having the market go against you is certainly no fun as many of you know. I only post here what I am doing myself with my own money. I neither have a service to advertise nor do it for ego. I love this posting aspect of TradingView.com because it betters my own trading and forces discipline on me so I can go back and review what went right and wrong.
Markets lately have certainly humbled me though in the long span of 10+ years I have been trading I can't complain - having had far more wins than losses.
Having said that let's get to the heart of the current trade - the short SPX trade which I am in now.
There is no doubt what I have labeled as wave B has retraced the Feb-Mar crash to a very deep level and threatening now to reach all-time highs. While a Flat can have a wave B higher than the origin of wave A I still believe we won't make it to new all-time highs at least in the SPX.
There are of course no guarantees in trading, but the risk-reward I believe still favors heavily the shorts.
Several things to note on these charts :
1) On the left is the SPX showing how deep the SPX from April to August / Sep 2000 retraced almost an exact Fibonacci 88.6% (square root of commonly use 78.6% level) the drop from March 24 to April 20, 2000 - the initial wave down of the dot-com crash. I am seeing more and more lately this 88.6% level - a level which most Fibonacci indicators don't automatically include but which I highly recommend you include. You will be surprised how often the 78.6% is exceeded in waves 2 or B but end up reversing at the 88.6%.
2) On the right is the SPX now and as can see today we hit almost exactly the same 88.6% Fibonacci retracement of the Feb to March lows.
3) Further - we can see an ending diagonal forming since June 15th lows and today we hit and reversed exactly at the upper trendline of this ending diagonal.
4) Ending diagonals can be complicated creatures and go on and on with multiple sub-waves - usually confounding Elliotwave counts - but we can see 5 overlapping waves up each composed of 3 subwaves - as required by Elliot rules. It is common for the final third subwave of wave 5 to "overshoot" the upper trendline and quickly reverse down into the ending diagonal - though this is not a requirement - it is, however, common so we shouldn't we surprised to see it. In fact, on the futures, we saw this overshoot which so far has indeed reversed back inside the lower side of the upper trendline. While we could have another drop and minor new high again testing this upper trendline - this is not a requirement. Confirmation of trend change comes with break of the lower trendline of the ending diagonal - and even better - a break of what I have labeled as the wave iv of the ending diagonal. When we break these watch out below...as the low 3100's and then the psychological 3000 levels are key areas.
5) On the daily and intraday timeframes (not shown here) we are seeing bearish divergence on the waves of the ending diagonal and between the high of the diagonal and the June 8th high - on indicators like momentum or RSI.
6) VIX did not drop down further on the SPX rally late in the day today - a bearish divergence.
7) Put-to-Call ratios are at extreme levels comparable to March and Sep 2000 - and more extreme than the Feb highs. Notably, we see the ratio rising last few days as SPX has been making newer highs - again - not confirming the rally - something that is a hallmark of wave 5s and ending diagonals - as reversal ending patterns.
8) Breadth indicators are showing negative divergence. As a matter of fact, more stocks dropped today than rose. The SPX was carried higher by fewer and fewer high cap tech names - especially the likes of Amazon. When the Generals lead the charge up the hill but the troops refuse to follow - watch out :)
9) I have shown the early Feb Gap and late 2019 (broken support turned resistance) resistance levels in ellipses. This is roughly around the same 88.6% Fibonacci retracement level I mentioned above as well as the upper bound of the ending diagonal. All in all - a confluence of quite a few interesting areas.
10) S&P Equal weighted CAP is not confirming the rise in the regular SPX - again indicating that few big cap tech names are distorting the SPX. The Russel 2000 and other small-cap indices - plus the Dow - already made their highs on June 8th. Their refusal to go to new highs is a bearish sign for the SPX also.
If SPX is indeed going to turn it needs to turn soon or we will need to re-evaluate the counts. There is no doubt the medium-term is bearish - the question is if the time is now or all-time highs are first needed.
Hi
Your predictions were not correct because the Fed understands the severity of the economic situation and will do everything in its power not to collapse a total collapse. Therefore all predictions for Short aspx, not just yours are not relevant. To much $$$ the fes print to the.market, The collapse will come when we will think upside down and become bullies and then they will take the money from everyone.
The question of whether to change position or stay a bear is indeed difficult and painful at the moment
Thanks
cyrusgr8
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@pureplanet, that's true up to a point. The laws of economics can only be defied for so long. The way I think of it - there is a bowl of water open at the top and a hole at the bottom. You fill the top with water but water is also escaping from the bottom. Question about what level the water in the bowl goes to (up or down or stable) is what is the difference in the rate at which water is being poured in versus how much is escaping from the bottom. The water being poured in is Fed printing money. The water escaping is deflation as a result of insolvencies, debt deleveraging, unemployment, consumer spending habits changing, etc. Everyone only talks about the Fed but forgets the hole at the bottom - a hole which by the way gets bigger and so the rate of water loss increases - as the economic devastation spreads. At the beginning of this pandemic more water was being poured compared to the smaller hole size at the bottom and so overall water levels in a bowl (asset prices) rose. However, as more and more businesses close, as the $600 a week doesn't get extended, as PPP has gotten used up, as reopening being slowed down or reversed (or outright shutdown looming in some areas) the chain reaction effects are causing a rise in insolvencies and permanent job losses that are not coming back any time soon. Combine that with the loss of political will for more stimulus of the order that came in the beginning and we can see that the tide is turning as more water will escape than is being poured in. The idea that the Fed can print ad Infinitum at any level it wants forever is pure myth. At some point markets will impose discipline in the form of loss of faith in the US dollar (which is happening now) and the good faith and trust in the US government to pay back all these trillions in newly issued treasuries - and interest rates rise as bond prices fall. The Fed is trapped in a corner. It knows it. The hope they have is what they have done is enough to stave off the inevitable. If it was true central banks can just print money ad Infinitum forever then why would any society work ever for a living or bother? The Fed could then in theory just make out of thin air 100 trillion digital dollars with a press of a button - and buys 100 trillion in treasuries the US Treasury issues and which Congress can just hand out as free money to everyone while all Americans retire from work. Why wouldn't all nations also do it? So obviously the reason this is not happening is because it is not realistic and means the Fed indeed does have limits.
TheMarketDog2
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@pureplanet, as Cyrus is saying this is a short lived theory for several reasons :
1) Money managers are offloading equities .. the rally is mainly supported by short squeezes and retail investors frenziness :
themarketear.com/posts/c0NCi3m_Tn/image/0 As you can see there is an outflow in the equities. Much of the money produced is still standing in money market.
2)Just divide the S&P by M2 and you can see that we can go much lower :
3)Money printing and a weaker dollar will not provide companies with long term earning growth... just take a simple example, if Apple has manufacturing cost which become 20% higher due to a low USD... They will either need to pass it on the the consumer (which got poorer due to the higher cost of imported goods) or need to take a profitability hit. In both ways they will have less revenue/profit.
4) As far as we are concerned the market is not yet pricing election and geopolitical risks. Changing the tax rate from 20% to 28% would reduce the long term earnings by 25% and with it the stock prices.
Ultimately in an asset bubble I would rather stay on the side lines...
as @cyrusgr8 is saying it's a tough time to be in the market...
cyrusgr8
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@guibl, Very well thought out and I love the SPX / M2 chart....never charted it myself but I will keep an eye on it from now on too. Thanks !
TheMarketDog2
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@cyrusgr8, yeah actually we're stuck below the Vegas waves on the daily/weekly.
There is a big problem with the market now. The US/CN of yesterday should have had a massive negative impact.
the TLT/US10Y is actually well pricing all of these events...
cyrusgr8
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@guibl, I actually just an hour or so ago did an analysis on the 10-year bonds. The US/CN is not really significant to trading the SPX. The correlation is all over the place and keeps moving around....from positive to neutral to negative. Just plot SPX500USD and compare to USDCNH and look on daily what happened to each as the crash was happening and on the rise since. I don't see anything really useful in studying the CNH as far as trading the SPX. It is probably more significant if trading Chinese Indices or stocks or a US stock that is heavily dependent on China.
TheMarketDog2
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@cyrusgr8, Thx for the answer. I meant the political situation, not the FX pair, sorry for the confusion...
cyrusgr8
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@guibl, oh sorry...my bad. I misunderstood.
CapeAfrican
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Great research - Keen observations of 2000. Been short SPY.....has not been fun.
Rob1n2
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@SeattleGuy, same here man. I am winning on my Gold/Silver companies but losing on my put options..
Your predictions were not correct because the Fed understands the severity of the economic situation and will do everything in its power not to collapse a total collapse. Therefore all predictions for Short aspx, not just yours are not relevant. To much $$$ the fes print to the.market, The collapse will come when we will think upside down and become bullies and then they will take the money from everyone.
The question of whether to change position or stay a bear is indeed difficult and painful at the moment
Thanks