Wednesday update

SHORT TERM: gap up opening, pullback, then DOW +1086

For the first three days of the week not much happened in the foreign markets, as most were closed, or open a limited time. The US market, however, was a bit different. Even though there was a half session on Monday, the market tanked to SPX 2351 at the close. Down 65 SPX points on the day. Today was a totally different a story. The SPX closed at 2468: +4.96%.

On March 4th 2009 POTUS Obama stated to buy stocks because they were cheap. The 2007-2009 bear market bottomed only 4% lower and two days later at the infamous SPX 667. On Monday Treasury secretary Mnuchin convened a meeting of the Presidents Working Group (FED, SEC, CFTC and Treasury). On Tuesday, Christmas day, POTUS Trump stated to buy stocks because they are cheap. Did the market respond to the POTUS or the PWG? Keep in mind POTUS Trump tweeted on December 4th that he is the Tariff Man. The market promptly dropped 15.9% over the next three weeks.

If today’s activity was because of the PWG, better known as the Plunge Protection Team, there is certainly more upside ahead in the coming days and possibly weeks. Managed
Markets for a Managed Economy (MM4ME). The rally from today’s SPX 2347 low, the 7th consecutive day of new downtrend lows, looks like three waves thus far: 2414-2394-2468. Short term support is at the 2456 and 2444 pivots, with resistance at the 2479 and 2525 pivots. Short term momentum reached quite overbought during the rally. The daily RSI just came off its lowest level since the 1987 crash. Best to your trading!

MEDIUM TERM: downtrend

LONG TERM: downtrend probable

CHARTS: https://stockcharts.com/public/1269446/tenpp

About tony caldaro

Investor
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524 Responses to Wednesday update

  1. gtoptions says:

    Thanks Tony
    Every significant low since February has had a Weekly Pivot Swing.
    ES ~ https://www.tradingview.com/x/bCkIPy1L/

    Like

    • Tony has a Fib 2270 on his SP chart (SPX 60min)…that said.
      The SPX could rebound, but then fall back for a retest of
      this recent low 2346. Yet, I am wondering if the potential retest of 2346
      might fail. It is a risk I am seeing. Why? well, this steep low
      could he at min retested. At worst, if could fail to hold the 2346 low.
      Then again, at looking at prior major price declines 20-21% have
      held in the past. My guess, is this one may as well. Only time will
      tell….

      Like

  2. M1 says:

    What a rally !! Tony.
    It looks like something may have ended on monday. This type of rebound could take the NAZ to 6,900 in a couple of days !!
    Short squeezing time ?

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  3. Outstanding Observation By Tony!

    Presidents making stock market predictions !

    Jan Effect has started RUT Small Cap Index looks bullish move now. Boeing lead big caps today higher. Along with Msft Tech Sector .

    CRON to dance 💃 now ! GL

    Like

  4. aahmichael says:

    No change in my view. Today was the expected bounce off of 2350. I see it as a wave iv bounce within the subdividing wave 3 down from 2800. Rallies like today are exactly what bear market rallies look like. So far, it’s retraced 50% of the 2585-2347 wave. I will have to change my count if this rally overlaps 2530. I covered my short position this morning after the reversal off of 2347, and will put it back on at the next 60min 3BR sell signal.

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    • Vince H says:

      Hi AA, what is a 3BR sell signal?

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      • aahmichael says:

        3BR= 3 bar reversal. At a trading top, it will look like this:
        Bar #1 is an up bar.(green)
        Bar #2 and Bar #3 are down bars. (red)
        The high of either Bar #2 or Bar #3 must be higher than the close of Bar #1.(special exceptions apply in the instance of a gap open)
        The close of Bar #3 must be lower than the open of Bar #1.
        Trading strategy: Sell at close of Bar #3, and place stop 1 tick above the high of either Bar # 2 or Bar #3 (whichever is higher.)
        The inverse occurs at trading bottoms, which is what happened today.

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        • Vince H says:

          Appreciate the explanation. I don’t see it on the SPX 1 hour chart, but I do see it on the 1 hour ES from 11pm to 1am at the low.

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          • aahmichael says:

            Ignore ES. It’s irrelevant. You’ll see it on the SPX 60min chart ending with the 12:30pm bar, which closed at 2398.

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          • lunker1 says:

            Why would you close your short with this 60min 3BR while you still expect to see 3/4/5 3/4/5 etc?

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          • aahmichael says:

            Because the market had declined 15 days in a row, straight down, hitting the 200wma and lower monthly BB, with NYMO extremely oversold, in addition to the fact that a reversal signal had been given at the close of the previous 60min bar at 2373 after it bounced off the weekly S1 pivot of 2349….not to mention that a 414 point profit per contract in a single trade in just 3 weeks was good enough.

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          • Vince H says:

            OK, I must be missing something or confused.

            You said it’s a 60 min chart, but you’re looking at the 12:30pm bar, which is in 30 min bar increments?

            If I set my chart so that each bar is 30 mins, I can see the close of the 12pm bar at 2398 SPX.

            But I don’t see the low pattern you’re talking about.

            If you have time, can you please explain or post a chart?

            If I go back on the SPX chart with 1 hour or 30 min bars for past 2 weeks, I can see several top 3BR setups that worked.

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          • aahmichael says:

            Each bar is 60minutes, not 30 minutes. Make sure that your 60min bars start at 9:30am EST.

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          • kvilia says:

            aah,
            Can one use 15 min chart for 3br?
            Thanks,
            kv

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          • aahmichael says:

            kvila, you can use 3br on any time frame, but the 60min bars give the most profits with the fewest number of trades. Any time frame less than 60min is an exercise in futility. A waste of time and money.

            Like

    • aahmichael says:

      Also, for those keeping count, despite today’s large rally, today was the 16th consecutive day that SPX declined at least 34 points from its initial high.

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      • xEVAx says:

        Im calling it the bottom of C of 4 of the BIG wave 5 with a likely very choppy rally to last until 2021….. BEARS still have hope however under DOW 23K but that will be just an extension of C if it can hold the old wave 4 low at 20370…. On the recent move down from 2684 to 2347 on SPX there’s 5 down and 3 is shortest, if it’s 1-2, 1-2, P3 it shouldn’t have overlapped the last one and it did, going above the gap at 22400 was the warning for me, looks like a lot of shorts got COOKED .)…. That and Trump the magnificent (market manipulator) says to me (Better buy it LOL) and we are in a new uptrend confirmed by Phil”s 2370 holding short term, and closing above 23,200 also possible is it’s only wave A with B under way and an even bigger C down like FXAprendiz’es scenario….. Happy New Year!!!!! Kulaks =)

        Like

    • lunker1 says:

      what price was the reversal at 2346 confirmed at?

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    • valunvstr says:

      Post a statement and redact dollars so there is some proof. Or post real-time otherwise anyone can say they did something after the fact.

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      • aahmichael says:

        How about you just ignore my posts. Thanks.

        Like

      • aahmichael says:

        My purpose of posting on this board isn’t to post trades. I post here in order to help others learn how to analyze the market and trade on their own. I’ve been generous enough to share many insights and tools that I have garnered and discovered over the past 3+ decades. I rarely ever post during market hours. If you’re questioning the fact that I covered my short today, you’re correct that I didn’t post it in real time. What I did, however, was post it a day ahead of time.

        aahmichael says:
        December 25, 2018 at 1:43 pm
        The first thing that has to happen for me to cover is for a 60min 3BR buy signal to occur.

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        • Vince H says:

          Much appreciated. Thanks for your help and insights on this.

          Like

        • valunvstr says:

          If the point of your post isn’t to post trades then why mention them? Seems you’re arguing with yourself here.

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        • BDUBS1962 says:

          I appreciate your comments!. This can be a tuff crowd, to say the least. Ignore the noise.
          BTW, my longer term view, same as yours. I’ve not much to add and really don’t care on the day to day, though yesterdays volume was unimpressive. I hope you’ll continue to post your longer term views. Merry Christmas and Happy New Year BDUBS

          Like

    • it is wave 4, but not the wave 4 you think. look at bigger picture …. 🙂

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  5. xpto31 says:

    Tony, what is tmt and sct I chart of
    Spx? Thanks

    Like

  6. wildmarkets says:

    US trade delegation will reportedly travel to China for trade talks week of Jan. 7

    https://www.cnbc.com/2018/12/26/us-trade-delegation-will-travel-to-china-for-talks-week-of-jan-7.html

    Like

    • stockop says:

      portfolio rebalancing, retail sales beat, and now trade talks. not accustomed to the market giving so many reasons to buy at the lows…

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      • mcgcapital says:

        160 handle 24 hour rallies in bear markets usually aren’t bullish.. bet the forward returns are rubbish

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        • stockop says:

          Looks like we could potentially get this rally going for a few more days, but I’m on the same page as you. Really do not like the options numbers today at all. When every stock in the market is screaming buy…. going to be interesting to see how europe does tonight/tomorrow. looks like the FTSE is going to break big one way or another shortly.

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          • mcgcapital says:

            FTSE I don’t know where it bottoms, I’m literally just playing pivots. Got rallies off 6620 pivot, then that gave way, and we got another rally from low 6500s which was the US election night low. Under there it opens the trap door.. thinking maybe 6300s in January then half way back to 7100. All depends how things set up. 6900 is the limit to maintain the lower highs short term

            Like

          • stockop says:

            imo i’m looking at the 2015-2016 neckline for a bottom in the FTSE if we break the trend line from the 2009 lows. I think some sort of bottom is near, but I do not like the 180 flip that today caused many people to do (option #s, anecdotally, and some sentiment #s) . if we do see a lower low in the US indices i’m looking for a legitimate capitulation/panic event. a quick smash thru the 200wma and I think it’ll happen.

            somehow we jumped more today than we went down in a single day during this entire decline. if this was indeed the bottom I expect some sort of retest in the coming weeks.

            found this stat interesting. Only 1970 had the reversal the highest % gain/loss of the entire downside move. lot of smart people who have called previous turns thinking the low is in…

            CME group JUST released the preliminary futures OI for today. Irks me so much I might just short their stock. if their tight trend line breaks I will be slamming that POS. OI shows short covering played a role today although it is not as large as I would have liked to see.

            Like

          • mcgcapital says:

            I think if this was a correction you’d have got the double bottom somewhere around 2600.. otherwise we keep chopping and making lower lows. The price action isn’t healthy.. the rallies start choppy then ramp at the close. This is the 4th massive up day since October with similar price action. The 16th October and 7th November ones marked tops. The 28th November one saw a pullback the next day then rallied ahead of the trade news that weekend. Need to see if it makes higher highs tomorrow or starts to drop back. Hard to know where we stand until January but that’s only 3 days off

            Liked by 1 person

          • stockop says:

            my biggest problem with everything is that I can’t get 2016 out of my head. everything looks bad, but sentiment is almost at those levels and that led to a huge rally. I will wait til the fed backs down, but I fully expect them to if we do continue downward. price action was horrible in 2016 and it meant nothing. as you said tho, the Fed impacted the market in a way that I and many other people underestimated. If/when they decide to put a floor on the market I will not fight them.

            Like

          • mcgcapital says:

            Main differences vs 2016 are that back then we spent a decent amount of time near the top end of the trading range, the last parts of the declines were quickly reversed. We also kept double bottoming. Here the double bottoms never hold, we spend most of the time going down with the odd spectacular rally thrown in. Feels very different to me… as for the Fed, only last week they confirmed a hawkish policy stance so will take some time yet for them to change. They will, but the damage might be too much by then if it isn’t already

            Liked by 1 person

        • aahmichael says:

          There’s a tweet for everything: (click on the table to see all the dates)

          Like

  7. BDUBS1962 says:

    Hi Tony, Merry Christmas and Thanks for your tireless commitment to this blog.While I have read your blog for many years, I have recently spent far more time with it and find much to like about it including a lot of “food for thought”, plus a good place to “take the temperature” of a subset of the trading community. I have only posted 2 or 3 times in the past as I’m a long term fundamental investor who only trades for what I refer to as “entertainment value”, and invests fundamentally in a very small number of stocks, both long and short, to build capital. I have little to offer in the world of fibonacci and I focus on long term (1-5 years) trends and hope to be right significantly more often than wrong. I have been an avid student of markets since my teens which was 40 years. I have been working under the assumption that we have hit a pivotal(pun intended) inflection point in the markets and it is likely going to be at least one year for this bear market to run its course. My “targets” are substantially lower than most on this blog. As a very rough expectation , I am looking for the S+P to give back roughly 50% of its bull market gain from 666 to 2941 which translates to 1,800 over the course of this bear market. Clearly, imo, QE was an unprecedented tailwind to the bull market and QT will have the opposite impact. That is reason #1 I am bearish, and as a believer that liquidity and capital flows are far and away the most important variable for stock prices, I think its importance is lost of most market participants. Generally, to derive my outlook, I use 4 sets of indicators (monetary conditions or Fed policy, valuation, sentiment and lastly(and least important) the four year presidential cycle. As of this writing(1) I would argue monetary conditions are hostile due to QT replacing QE,(2) valuations fair at best (the way I think about this is the current consensus is about $173 for 2019 S+P earnings, which I haircut 10% for where we are in the cycle(call it “normalizing” or a discount for the unprecedented current levels of profitability. Admittedly, this “haircut” is rather arbitrary but based on profitability measures from return on capital or equity, to pretax + net profit margins I think its generous to the bull case. The math to this and thus my “adjusted” P/E calculation is $173 X .9=$155.70. At todays close of 2468 that puts the multiple at a shade below 15.9X next 12 months earnings, not very expensive, but certainly not cheap.(3) I think sentiment ,particularly after the last 3 months, is remarkably bullish and cite this in my last post a couple of months ago, citing Mark Hulberts “investors intelligence survey”, which I find invaluable(his readings are still showing alarming bullishness. I agree with much of what AH Michael recently said about sentiment here recently. I find on this blog- EVERYONE IS LOOKING TO BUY THEM!!!!…level after level melted and it seems like day after day i’m reading and hearing 2600 , now..2500 no, now!…. 2400 no now!!…you get the point. “Buy the dip” has become “catch the knife” among many market participants.(4) The 4 presidential cycle is the one positive on my “market stool” as we have year 3, the best by of the 4 by far at roughly 13.5% working in stocks favor. When I think through all of my inputs, I think 1800 is a reasonable working assumption. The current “waterfall” nature or , until today, as Tony called it “auto-pilot” style of the decline is very unusual and while its been severe, I never saw what I would call a “capitulation day”(I don’t believe we had one 5% down day). It interesting the entire move down has been less than Oct. 19, 1987, not that I draw any real significance from that. Anyway, it seemed like a good time to post some thought as the calendar is turning. Thanks for listening to my ramble and best of luck for a Happy, Healthy and Prosperous New Year!!
    Thanks Tony!!

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  8. That was a good oversold bounce today.
    $SPX was up 4.96%
    One problem is 10 treasury interest rate was also up 1.75%.
    5 year Treasury, more, 2.17% up.
    Arithmetic is not good for investing new money into stocks.
    Bounce may continue. Looks to need one more wave up.

    Like

    • The reason that Bond yields started trending higher at the same time that the SPX started to rally hard (11am Eastern) is because there was a massive quarterly pension fund rebalancing…. selling bonds and buying stocks to fulfill their mandated exposure.

      Given that this was the worst quarter for stocks since the 2008 financial crisis (while bonds moved sharply higher)…. this rebalancing wasn’t all that difficult to figure out. And as you may recall, bonds closed the end of Q3 at a yield of 3.06% vs 2.75% on Monday.

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      • Bottom line, stocks prices topped out 11 weeks ago.
        10 year treas prices topped out 28 months ago.
        Financial assets moving lower.
        “rebalance” is a fancy word that people who are grossly overpaid use in lieu of saying something useful.

        Like

        • mcgcapital says:

          It’s providing a bid to stocks but the effect isn’t as much as is being reported, and is dwarfed by the amount of capital that is trying to exit.

          I’m sure the $110bn figure refers to the transfer if all of the pension plans moved back to benchmark. I’m not sure what the standard process is for US pension plans, but in the UK the majority of them won’t have automatic rebalancing set up as they likely hold assets with multiple fund managers. They also often have quite wide control ranges around the benchmark so you can deviate from the investment strategy and don’t have to rebalance. If rebalancing is discretionary, no decisions will be taken at this time of year anyway as people are on holiday. And Trustees would likely be nervous about adding to equities at their discretion when markets are doing what they are. Plus even if they want to rebalance, they’re being advised not to trade the last two weeks in December as liquidity is generally lower so any activity probably doesn’t happen until January. So all in all, probably not as big an impact as is being made out

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  9. Thanks Tony

    today’s action reminded me some of the 2008/09 rallies

    CL monthly

    closing at 48 or above it’s ok,above 52 would be better
    double top reached till now 1,62 of the target(which is the second target,first was 52)
    https://invst.ly/9mfvc

    SP500

    main TL is broken,reacting on MA200
    could make a TL retest
    H&S target ~2265
    https://invst.ly/9mfxf

    DOW
    still far away from TL and MA200
    H&S target ~19800
    https://invst.ly/9mfz1

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