timwest

S&P500 MONTHLY BEAR-TRAP

AMEX:SPY   SPDR S&P 500 ETF
2483 26 43
Let's look at the monthly chart of the S&P500             by way of the SPY             ( S&P500             ETF ).

What we see here is a pattern that shows how a market moves and how to read those movements. These are the tracks left behind by the transactions in the market. If a seller jumps aggressively into the market and "hits the bid" (the buyer), then the price is forced down. If that buyer didn't really want to buy, or rather was just "making a market" and bidding in hopes of maintaining an orderly market, then after the buyers bid gets hit, they turn around and try to get out of their trade and turn into a new seller. If there is no other "market maintaining limit buyer" then the market may just continue on down especially if the original seller returns with more stock to "hit the bid" again. This process repeats itself until the price settles down to a level where buyers and sellers equal out.

The truth is that many market participants create a false sense of liquidity at most times. Their buying and selling are short term in nature and don't impact the long term balance at all.

What we are seeing here on this MONTHLY chart is that sellers came out in force at the 2000 high and began selling and stayed on top of the market as it sold down and traded lower. It took 6 different months of aggressive selling for the market to find a bottom. The same happened in 2007 but this time it took only 5 months of desperate, aggressive selling to get the job done. The "job" refers to balancing out the market and finding the bottom.

Now fast forward until 2014-2015-2016 where we have seen 5 months of selling (3 somewhat aggressive and 2 very aggressive) and yet, notice this time that the price lately is ABOVE the mid-point of the aggressive selling.

What does this mean? I believe it means that sellers are trapped either in CASH or SHORT. If they are "short" it means they must buy the shares back in some way or another. They can use options and derivatives to close out the short position, so it can show up in "call option buying" or in direct open-market purchases. It's always hard to tell, but a quickly rising VIX             ( Volatility Index) is one way that option buying reveals itself.

What I can derive from this pattern is that the rampant bearish sentiment that is in the media, investors surveys, trader-advisor surveys, positions in futures and any other way to determine if the market is "short" or "long", is that the market is very short and very "TRAPPED" in bearish positions. Maybe investors hope for a "Brexit" type of decline like we saw at the end of June this year, which gave fast-profits to bearishly positioned traders.

From a psychological standpoint, this type of "PATTERN" is more typical at a major market bottom than at a top, so I am working extra diligently to determine how the market will unfold from here forward to remove this dramatic bearish sentiment. The market could simply chop back and forth here for awhile to dissipate this energy and potentially build a base for a longer term advance - after a year or more.

Come join us in the Key Hidden Levels Chat room where each day we look for "patterns" like this in the markets and in stocks on shorter term time frames to help us find low-risk trades.

Cheers and for all of you here in America - "Get out and VOTE"!

Tim

11:56AM EST Nov 8, 2016
Comment:
snapshot


If you draw lines at the mid-points of the RANGE EXPANSIONS, you can find support.

Note where we stopped in the decline at "LIMIT DOWN" last night as the election results rolled in.
Comment: BEAR TRAP -

The best way to describe the current market environment and action is "BEAR TRAP". I haven't seen it described at Twitter by any other analyst and I had called it in advance here and in the chat room.

Logically, the rally wont create a new blast off, but rather a "fake-out-breakout" followed by a steady, quiet market that chops sideways. The bulls don't want to pay UP to buy stocks and the bears will be afraid to short more after they got fleeced for a 3rd time.

So, sideways for a few months to a few quarters, then we see what DJT pulls out of his magic hat.
Comment: So far the "BEAR TRAP" concept is still the best concept to explain the market action. Hopes for lower corporate tax rates, a repatriation tax-holiday or reduction, together with hopes for other 'stimulative' economic measures has the markets moving. Short term sentiment has lifted dramatically, but not sure how much money has been moved from cash on the sidelines. So far, the safe-havens continually are under pressure (Gold, T-Bonds, especially). Upside is still possible with tax rate cuts. About 1%-2% upside for the stock market for each 1% cut in the tax rate. That's a wide range. And if "No cut" I see sideways action for awhile. December 17, 2016 5:12PM EST
Comment: I imagine there is a way to define the end of the "bear trap" phase. I would count all of the price action in those downward yellow triangles (the downward price movement of the market in the monthly time frame) and then look for the same amount of price action from when we poked above the high of all of the triangles (traps). Once the price ranges are equal, the trap should be over.

As for the news lately: Given what has happened by "Executive Order" here in the US, we are on pins and needles waiting for the next "event", whatever it may be.
Comment: Here's the method I just intuitively devised:

snapshot


Sum up all of the "squeeze bars" that I have highlighted in Yellow. That totals 101 points in the SPY (S&P500). So far through December we are at 51 points and January isn't counted yet since it isn't done until tomorrow. I imagine this works.

snapshot
Comment: January is now closed and I have updated the numbers.
When I calculated the range of the month, it may be approximated and not perfect. This isn't designed for perfection since it is just a guideline.

I eliminated one of the yellow triangles because the decline was not a "range expansion" decline. "Range expansion" is when the decline is greater than the previous range subtracted from the previous close. That is what creates the panic feeling that scares investors. It gives the feeling of the floor falling out from underneath of you.

So, we have the following:
snapshot
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Tim, again, I agree with your bullish premise here. They are trapped.

Another way of saying this:

1.) The earnings recession is officially over, and never spread into an economic recession (which as an off-topic aside, is something I've been saying for a year, because the earnings recession was caused by two things, the huge oil decline and the huge dollar rally, both of which reduced S&P500 top/bottom line by 15-20%, and never spread materially).
2.) Sectors such as big cap tech, healthcare, and financials are not expensive - their valuations are hardly indicative of the ebullience you find at cyclical market tops
3.) just using no actual fundamental or critical thinking, can use a crayon and say we have held an important breakout for several months

In any case, there are a lot of fundamental and cyclical drivers in play, and I suspect the people loathe to acknowledge these drivers will be the same people who have fought the market up the past 6/7 years.
+2 Reply
timwest PRO SPYderCrusher
Well said. I'm in total agreement with your fundamental assessment. This was more of a technical pattern that told a great story, but I t's great to back it up with fundamentals. I'll re-examine my 2016 forecast to see how I addressed the dollar rally earnings recession.
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If I recall, your 2016 annual forecast pretty spot on, at least with respect to the green price action zig zag you draw. And yeah, its great when the fundamental premise overlaps with what the technical picture suggests.
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TomPower SPYderCrusher
thanks for the great rec, the futures are down 800 points, I can now retire at 100
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this is a monthly chart, not a gamble on the day before a binary event. Fundamentals are slower to move around, as I'm sure you're aware
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TomPower SPYderCrusher
Gimme a break. do you think a small-time investor like me can trade that way. I hate to say it but I think you guys got all the money and you're giving us the reverse psychology that's why I'm voting for Trump you are the one percent spider
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I'm...not quite sure how to reply to this but you are mistaken on most counts. I don't think small investors should trade, and I don't like the idea that it's easy for someone with little capital to jump in and do the same job as someone with 20 yrs of experience. Like what if there was a whole industry, and 1000s of websites saying "hey, you've put on a bandaid, try surgery next>! No, it's good, you can learn how!" So I sense and understand your frustration. None of what I said is intended as anything resembling advice its just my point of view on what the market has done, why it did it, and what it may do going forward. I explained why I think what I think. But it's not reverse psychology. As a disclosure, I am nearly completely long going into tomorrow, which is the same amount I was long last year, and the year before that. For sure, I'm going to have some type of negative account day tomorrow (lol to say the least right). The reason is not that I'm an idiot (I hope) but that I am a longer term investor, and I don't see reason yet to think, for example, Visa, a stock I own (not a rec'd to buy) is now a bad business. Also, it seems Trump won and its a good thing you did your civic duty to vote.
+3 Reply
timwest PRO SPYderCrusher
@SPYderCrusher, If you guys follow me at twitter my handle is @87spider because I graduated from the University of Richmond (Mascot: Spider) in 1987. Perhaps I also like the 1987 stock market crash because it taught me so many lessons. Painful lessons. I've spent my life trying to help others learn about the markets and how to navigate through tough times. This election is another one of those times. I've learned how to invest and how to deal with drawdown, big gains and everything in between. I learned so much from my very successful parents who had an extremely long term view of Investing from the buy and hold camp. I've also learned how Wall Street works from the inside while at a major institutional brokerage firm on the block trading desk. I think my experience is unique and helpful. Thanks for your insights and comments spydercrusher.
+2 Reply
@timwest, Thanks Tim, I appreciate it. I assumed "spider" in Tom's comment was referring to me (my handle on twitter is also @spydercrusher same as on TV) but coincidentally, maybe it was to the both of us, haha.
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timwest PRO TomPower
@TomPower, I replied to you by way of my other comment below. Investing requires long term patience and acceptance of the many bumps in the road. Don't get excited when things go well and don't have despair when things don't go so well. Be ready to buy when great companies go on sale at low prices. Then when you feel like patting yourself on the back for being so smart, raise some cash from the stocks that aren't doing so well and prepare for another rainy day in the markets. It's hard to do the opposite of what human nature tells us to do, but it's possible.
Reply
wtfrtr timwest
@timwest, On this site where so many of them selling stuff(mostly useless) or giving entry/exit points. Such a shame, majority of them looking to make quick $$ rather then learn which can take years and years of hard work and patience.

I like your way of thinking, investing, getting as many pieces of the puzzle together to come up with a rational.

Great work Tim!
+1 Reply
@wtfrtr, Thank you! I do hope I am helping to make investing a lot easier and more logical. When I help everyone else, I end up helping myself. As I become a better teacher, I also become a better student. That's what TradingView is all about. Help each other to help ourselves.
+1 Reply
Additional color to the comments: The yellow triangle points are the "START OF PANIC SELLING" and the yellow lines are the "CORE SUPPORT FROM PANIC SELLING"

The market fell down and hit the first "CORE SUPPORT" last night and the market held like a rock.

Why did it hold? That's where these HUGE SHORT POSITIONS will attempt to cover. Think, more importantly, "Who will keep selling to drive the price down?"

You always need "Fresh selling" to drive prices down. Markets bottom because the sellers run out of stock to sell and short sellers run out of nerve as the risk/reward shifts against them.

So, use the MID-POINT of the Yellow PANIC triangles to signal very strong support.
+1 Reply
G13Man timwest
@timwest, i like your logic , the market will sell its junk , but value companies should not sell , unless the stock owners owned junk and got margin called ,, value and dividend companies will continue , they have to for the big wigs as well as the little fries !
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Great work Tim!
+1 Reply
:-) Delightful explanation and analysis Tim thank you so much. DJT - who'd have thought...well here in UK it's no big surprise...we led the way in kicking the Establishment..though we have a Prime Minister who does at least have an IQ greater than that of an Orange.
+1 Reply
wtfrtr Rostand
@Rostand, Hey take comfort in knowing at least you don't have an real orange like we do :)
Reply
Awesome sauce.
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"DJT pulls out of his magic hat." did you mean DowJones Transports? And what magic hat do you assume? I've noticed Transports already up and pointing higher, and with you on not-a-bearish side, would you be buying dips of *anything* or wait for the hat?
Reply
@2use, Good point! I meant Donald J Trump for winning the election. That is "pulling the rabbit out of the magic hat" expression. If you follow me on Twitter with @87Spider you can see I called for "UP ON THE DAY" when the futures were "LOCKED_LIMIT_DOWN AFTER THE ELECTION at DOWN 5%!" My best call in a long time. I've been bullish on the Transports (DJT) for the main reason that they are DIRT CHEAP and OIL PRICES WERE SET TO FALL. I am not a big user of Dow Theory, but just try to see where the valuations are and what sentiment is out there.
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2use timwest
@timwest, I guess you are more active on twitter? I see you retweeted "Over 100 yrs of presidential transitions, have never had an 8 yr President w/o #Recession in 1st yr of New President" - is this to be pinned in the plan for 2017?
Reply
@2use, I am active at times on Twitter. There are many great analysts and I like to highlight the interesting points. The 8 year President without a recession is interesting. I view "SIDEWAYS" as the most logical outcome for the stock market. If earnings go down and tax rates go down, the stock market can hold on or tread water, maybe advance a little. If rates rise, we get a lower stock market, but also will get a stronger economy because so many people will have more income to spend if banks begin paying interest on deposits. Banks have been stealing money from savers for many years now and it HAS TO STOP. They steal by not paying any interest, which isn't fair when they are charging 6%-10% for borrowers to use the money. They are robbers. So, keep that in mind that RATES, EARNINGS, TAX RATES all have impacts on the market.
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2use timwest
@timwest, in many countries the rates are negative, so deposit rates are close to 0 - and i dont think it is working that well
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@2use, Agreed. Low rates wont work because negative rates make big borrowers absorb all of the capital in low risk arbitrage trades. If banks loan money, then there is a chance for economic growth, but we need to track loans outstanding and see if low rates are driving new investment and spending. I'm tired of seeing "savers" get caught in the crossfire of the Fed, regulations and bank lending strategy.
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Excellent as usual Tim, very few people caught the nuances here, and you've done extremelly well due to your logical yet outside the box insights.
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Thanx for timely updates, Tim
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