S&P500 MONTHLY BEAR-TRAP
Updated
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
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
Note
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.
Note
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.
Note
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 ESTNote
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.
Note
Here's the method I just intuitively devised: 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.
Note
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:
Note
The "Trapped Sellers" concept is still the best way to describe the last year in the S&P500. I hope you have been able to be positive while you may think the majority of people/analysts/newsletter writers seem to be forecasting a decline in the stock market all year long. What I've found from doing research on this concept is that the "Range Expansion Declines" can be added together from the highest starting point of a RgExp decline.
Try it - you'll like it.
Tim Dec 3, 2017
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