First of all, what can I say about the markets? They are going up and look like they will continue to go up, but there is a but…
As January began and companies started getting their cash back from whatever hell holes they had hidden them , the US Dollar dropped, and the stocks went higher due to increase of value in their spendable accounts and due to the fact that the market value is valued in USD. (I went into a slight offtopic there in regards to a theory that most forget the basics of measuring value and the fact that it isn’t just SPY… it is SPY/USD!)
So the bottom line is - The markets overoptimistically overheated the market in January and it resulted in what the “experts” have called a “dive” “plummet” or for Christ’s sake “crash”. (Although it was just below three percent, seems like the finance media is running low on income and have begun to click bait. Might look at their stocks)
In fact we see a retracement, which was long ago cried for by many, as the market needed to drop off some steam and feed the skinny bears, which haven’t had even a 3% daily drop since July 2016.
Before I delve into the technical stuff I want to mention that the drop was not caused as many call for bad , but because of chasing cars.
What I mean is that there was a large buying increase the week before and the SP got overheated on Friday. (Personally I saw a jump of more than one percent during a day as a benchmark.) This week the market well… got overbought and finally retraced back.
Now the issue is to forecast, where this retracement might stop and the surge resume.
The market confirmed the existence of a dominant ascending channel with the latest retracement. (blue lines)
However, it is one of the many previously speculated, as fundamental changes have caused the breaking of the long term patterns one after another in the past months. So I think that, if Trump will want to boost the market, the channel will be broken.
In the borders of that pattern, since the start of September we have an active medium scale pattern. (purple lines)
In addition to the mentioned two, I also chose to draw a junior pattern (black lines)
There is a HUUUGE (read it in Trump’s voice) problem with all of these channels. Their support is clearly confirmed (at least three times each), but the resistance lines are different. Each one of them uses the latest retracement and a high level of a previously existing descending trend.
At this point the trend charters have already screamed in their heads – IT IS A PARABOLIC MOVEMENT YOU NUMBNUTS!!
I know.. I just like channels.
So let us look at the support lines of those channels.
The junior seems to have been almost approached at the end of Friday’s trading session. However, the price was stopped by the Fibonacci retracement level, which is drawn by using the high and low levels of the junior pattern.
That could be the first level, where we could see the surge resumed. (From a fundamental perspective it would occur, if Trump gets notified about the drop. Anyone got his number?)
Second level would be the combined support of the medium patterns lower trend line, another retracement level and the monthly S1 at the 272.00 mark.
Coincidentally or not… that is the level, where a 5% retracement would occur. (Some “experts” have talked on the main channels and twitter that they would like to see that before the market continues going higher.. Why 5%? Because 2+2=4 and +1 =5)
In regards to the last line, I don’t even know where exactly it could be reached.
One method is to take the angle of the previous declines of the index and imagine that such a decline would occur down to the supporting trend line. (I found that since 2016 all notable declines had the same angle)
With that angle in mind I looked for reference points for lines for a channel (the pretty pink one) (this is so risky… do not follow this pattern at all.. DO NOT DO THIS AT HOME) and found that the crossroads of a Fibo, the blue and the pink line meet near 264. That would have the market return down to pre tax reform levels.
That concludes this massive analysis, which might be useless tomorrow, if Trump and the Fed decide to pump the market. However, that is something I am willing to risk.
P.S. If someone is interested in the fundamentals and politics of the US market, ask in the comments. I recently did a rather large research in macroeconomic data and the aims of the administration and the Fed and all that interesting stuff.
Closed my previous longs at the start of the session. Suffered rather big losses due to that drop, if compared with the high level of January.
However, for the sake of it, made a "small" short just as it started going down and cashed out by the end of the day.
Tomorrow, we look at what will happen in regards to that dominant patterns support line. If it gets passed, the bulls are done for for some time and the bears will rule. If not, well there we have it - the healthy retracement.
Healthy retracement = all the nonsystemic and non-cold blooded traders and retail mess arounds, and various investors have taken a loss (which was taken by the winning market participants) and business might resume as usual at a slower pace.
Fundamentally it was volatility traders of VIX and algos..= nobody
So..the dip is here.. I am shopping..
Meanwhile, I have reduced my exposure and set more long term stuff up, by basing everything on the daily charts.
Might be because of large players making their decisions in regards to the fact that VIX should be gone the day after tomorrow. (Read that on a news feed by CNBC, although... CNBC..)
Found the quote:
"Credit Suisse said that it will send the redemption notice “no later” than February 15. The so-called “acceleration” event, in which investors will receive cash for each ETN unit, will be February 21." - via Financial Times
The base for a bullish forecast is like this - the money that got taken by VIX traders and some larger funds, will move to other stocks after that thing gets the lights turned out.
Bearish - The funds, which lost loads of money, will be covering their losses by selling their winners of the previous year, so that they don't appear to be having a large drawdown at the end of the month, which would be followed by something much worse.
Meanwhile, all is clear that we will have something damn cool to watch, if there actualy is a large reaction to the fact at the opening of Wednesday's trading session.
Personally, staying long, well because in a couple of months this should blow over, as the 10% retracement has occured.
On the other hand, I would not lose too much, because if the event gets followed by a large bankruptcy that causes a bear market, I will have suffered losses (at the moment I am still in the green for this year).
I read that last sentence and realised, that I am going to bed. However, bottom line - if s*** hits the fan, I would enjoy the show and will have paid as much as per a vacation. If it doesn't - I will have to do with money.
In general this has been a day of losses for me. I sensed that my judgment was about to be impaired. So I left only the June calls and opened a grabbed a small put to short this dump, but that is more like an experiment for me.
That short term short netted 10% on the position. However, it occured through a stop to the upside.