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Likely Bearish Confluence - S&P500, VIX, DXY & EURUSD Powells recent remarks gave the S&P the boost it needed to test the weekly bearish trend line and now price action is also at a strong horizontal area of resistance. Other indices such as the FTSE have retraced most of the drawdown from when markets started falling at the start of the year. The S&P also is currently testing its Weekly 50ema. The VIX, which is the volatility index of the S&P is also heavily oversold and is sitting right back in a large area of support, as would be expected from the S&P moving higher in recent weeks. DXY, which has seen a pretty strong pullback after the recent bear market equity rally is now back at Weekly support, which coincides with getting very close to its Weekly 50ema. The confluence seen is also reflected in EURUSD, which is retesting its Weekly 50ema and a weekly horizontal resistance level. At current the confluence in the markets is pretty clean. Powell seemed to suggest that next months rate increase would be 50 basis points and the markets seemed to really bounce from that news. However, Powell was hardly dovish. If anything it seems to me that the recent rally after Powells comments enabled the markets to move up to a good area for bearish positioning. Short S&P, Long VIX, Short EURUSD and Long DXY.
CAPITALCOM:US500Short
by Tall_Short
ES Daily Harmonic Elliott Wave AnalysisOverview: let's review the expectations on the previous update: Completed wave c of (x) as expected and now we should head higher to form the last zigzag and complete wave b. Update: the price action followed the expected path precisely. Now, based on the structure, I see that we should still go higher. Wave 5 of a of (z) of b will form today, then we will have a pullback to test the broken descending trendline as wave b of (z) of b and again rally higher to complete wave (z). What are points of interest to consider as wave (z) peak? (~4217-4253) since the update of Nov. 14th, we had 4132.75 as a potential target, which now I think is going to be surpassed. Based on the pullback of wave a of Z, we get these points: 4208.75, 4245, 4253. Based on the volume profile of wave a of Z, we have 4276 as a previous POC and 4217 as the VAH. There is a very important point in this count, as I warned before, this count can turn into an impulsive wave with equal probability and validity, meaning the bottom is in (this is a fact in the Harmonic Elliott wave theory that a triple zigzag can be also an impulsice wave since they both have the same structure of subwaves). How do we know which count is playing out? for now, we don't really care, both counts point to the fact that we should still head higher and get rejected probably mid-December to go lower. The structure and extent of that pullback is what determines the correct scenario.
CME_MINI:ES1!
by bamdadsalarieh
2
ES Daily Harmonic Elliott Wave AnalysisOverview: let's review the expectations of the previous update: Developing wave b as a triple zigzag Second wave (x) is a flat with its wave 5 of c still missing. Wave b can be complete as a double zigzag and the confirmation for that is if we break the ascending trendline on the hourly chart. Update: not much to update. We completed wave c of (x) as expected and now we should head higher to form the last zigzag and complete wave b. Again, don't forget that it is possible that we have peaked: we wait for the breakdown through the ascending trendline to confirm that.
CME_MINI:ES1!
by bamdadsalarieh
ES Daily Harmonic Elliott Wave AnalysisOverview: in the last update, I expected that we are in wave 4 of c of (y) of b. So the basic idea was that we needed a pullback followed by a final push higher. Update: I am still having the same idea, but with a little bit of relabeling to my hourly count: I think we are developing wave b as a triple zigzag and right now, the second wave (x) is developing as a flat with its wave 5 of c still missing. Note that wave b can be complete as a double zigzag and the confirmation for that is if we break the ascending trendline on the hourly chart.
CME_MINI:ES1!
by bamdadsalarieh
ES Daily Harmonic Elliott Wave AnalysisOverview: the hourly count that I published yesterday was the bearish case that we have peaked for wave b, with a very short wave V of (c) of b. However, we did not see any follow through on the bear side and the move down from the Nov. 15th high is not impulsive. Now, I am reconsidering the same hourly count as before. Update: we are in wave V of (c) of b. I have the same target as before: 4132.75...note that this market is so fragile that any news can through it on a different path, aka bearish count.
CME_MINI:ES1!
by bamdadsalarieh
SPY Analysis (November)This is an analysis of the S&P 500 ETF ( SPY ) for November 2022. Overview The S&P 500 remains in a downtrend. While price bounced off of the 200-week moving average, there is a significant amount of overhead resistance. There has not yet been full backwardation in the VIX term structure that could lend credibility to the idea that a cycle low has been achieved. Cycle lows typically do not occur until after interest rates begin to decline. Therefore, so long as the Federal Reserve continues to raise interest rates, which reduces the supply of money, it is unlikely that the stock market can create new all-time highs. The yield curve has inverted to an extreme degree. A yield curve inversion reflects a contraction in the credit market. Since credit is the main driver of the money supply and economic activity, an inverted yield curve is a warning sign of future economic decline. As the unemployment rate rises and corporate earnings decline, the stock market is likely to face a prolonged period of headwinds. Due to persistent supply issues in a deglobalizing world, commodity inflation is likely to persist even as demand cools, thus creating a difficult situation whereby, for the first time in a half-century, central banks' ability to increase the money supply to stimulate the economy is substantially limited. The global economy is likely entering into a new supercycle where interest rates remain elevated or increase over the long term. This stagflationary environment is likely to stunt the S&P 500's growth prospects for the long term. Companies with negative cash flow and no pathway to profitability are likely to be severely affected. In the worst-case scenario, commodity hyperinflation, debt crises, and a monetary crisis are all possible in the years ahead. Nonetheless, despite deteriorating macroeconomic conditions, plenty of great investment opportunities abound. Bullish post-election seasonality may carry the entire U.S. stock market higher, especially as market participants perceive a pivot in monetary policy. Overnight repo action hint that the Federal Reserve may have already stopped draining liquidity out of the banking system. As the world transitions to sustainable energy, companies that invest in sustainable infrastructure are likely to move substantially higher. Emerging markets, especially India and Latin America, are likely to be beneficiaries of flaring tensions between superpowers. It is during market turmoil that well-planned, risk-managed investments can prove most lucrative in the long term. Market bottoms form when all market participants become bearish and no sellers are left. Quarterly Expected Move There is a 68% chance that SPX will close the year within this price range. High price: 4047 Low price: 3125 For those who do not already know, the quarterly expected move is the predicted range within which price is expected to remain at the close of the current quarter (3-month period). It is calculated using the implied volatility from the asset's options chain after the close of the prior quarter but before the market opens for the current quarter. For more information on how to calculate these values, please see the link at the bottom of this post. Volatility & Seasonality As noted above, there has not yet been complete VIX term structure backwardation. VIX term structure backwardation reflects that the market is pricing in decreasing volatility in the future. The VIX term structure usually goes into complete backwardation at cycle bottoms, as this structure reflects the type of capitulation that major stock market bottoms typically exhibit. The VIX term structure currently shows that the market believes that higher volatility is to come (in 2023). Fibonacci Levels On the daily chart, price bounced at the 50% retracement level (Fibonacci levels drawn from the bottom in October to the most recent high on November 1st). If price can hold the 50% retracement level this shows relative bullishness. Price also continues to cluster around the 3rd Fibonacci spiral that I discussed in my prior posts (see links to related ideas below). Regression Channel Regression simply refers to the idea that price tends to revert back (or regress) to its mean for a given timeframe. Regression channels can help us identify which trend is governing price action. These channels can give insight into trend reversals. Since the start of 2022, the daily regression channel has been downsloping. Price has recently bounced off the mean, despite downward oscillator momentum. This reflects bullishness. Weekly Chart In the below weekly chart, we can see the EMA ribbon has completely inverted. The EMA ribbon is a collection of exponential moving averages that act as resistance when price reaches it from below and support when price reaches it from above. The last time the EMA ribbon completely inverted was during the Great Recession. In general, the farther the S&P 500 falls, the wider the EMA ribbon will get. The wider the EMA ribbon gets, the harder it will be for price to pierce the ribbon and break out to the upside. The significance of this is that a wide and inverted EMA ribbon on the weekly chart makes a sharp V-shaped recovery less likely. This is because when the EMA ribbon is wide, each moving average will individually pose a challenge to price action more so than if all the moving averages are converged at nearly the same level. Although the current situation differs in many ways from the Great Recession. Look below at how similar the weekly charts appear. Another chart that has me concerned about a potential capitulation event is the weekly chart for the tech short derivative chart (SQQQ). As many of you know, when the price of tech stocks in the Nasdaq 100 ETF (QQQ) moves down, SQQQ moves up. SQQQ is an important chart to consider because it reflects the extent to which retail traders are bearish on tech stocks. Right now, SQQQ's chart is particularly precarious and primed for a capitulation event because price fell to then bounced off of converged moving averages. If we zoom out to view the entire price history of SQQQ we can see that its price rarely rises above the weekly EMA ribbon except during capitulation events, thus indicating that we are dealing with unprecedented bearishness of interest-rate-sensitive tech stocks. For the tech bulls to prevail, SQQQ's price must fall below the EMA ribbon. Whereas if a capitulation event occurs, the Nasdaq 100 stocks can experience a rapid and significant decline back down to their pre-pandemic highs, as shown below. This could mean that as a ratio to the money supply, the Nasdaq 100 goes all the way back to the March 2020 bottom, thereby wiping out all the wealth that investing in tech stocks created since the pandemic began. To see why the money supply can be used in this manner, you can check out my post here: Stage of the Economic Cycle Since the 10Y/2Y yield curve remains inverted we are in the late stage of an economic cycle. Below is a chart of how each sector typically performs during this stage. Credit: Fidelity Investments We are most likely in Stage 6 of the economic cycle as shown below because stock, bonds, and commodities have all been declining to some degree in the past several months and because the yield curve is inverted. Once the yield curve inverts, economic contraction will subsequently occur. Although the general trend of all assets is down during Stage 6 there can still be rallies before contraction takes hold. Credit: StockCharts.com Yearly Chart When analyzed on the yearly chart, the S&P 500's current price action looks analogous to the Early 2000s Recession, as shown below. Following the Early 2000s recession, it took over 12 years for the stock market to sustain new all-time highs. Although anything is possible, unfortunately the current situation is looking similar. Bonds This chart is a ratio of the S&P 500 (SPX) relative to the price of iShares 20 Plus Year Treasury Bond ETF (TLT). The regression channel gives us a very interesting piece of insight. It could suggest that the S&P 500 is nowhere near its bottom yet. Since TLT's price drops when bond yields go up, this ratio chart suggests that for the current yield on risk-free long-dated government bonds, the S&P 500 could be way overpriced still. The higher the yields on government bonds rise, the more likely it is that capital will flow out of the stock market and into bonds. As shown below, the higher timeframe oscillators suggest this may be the case. Yield Curve Inversion The current yield curve inversion (as measured as a ratio between the 10-year vs. 2-year U.S. Treasuries) is the most extreme on record. This inversion is flashing a major recession warning. Emerging Markets Here's one investment idea that always works... Please leave a comment if you find an error in my analysis above or if you'd otherwise like to share your thoughts. Thank you. If you'd like to plot the weekly and daily expected moves for SPY on your chart, try the indicator "SPY Expected Move by VIX", which is calculated from the VIX rather than from the implied volatility of the options chain. The quarterly expected moves that I've posted above were calculated using options chain data. If you'd like to learn how to calculate the expected move yourself, this video can help: www.youtube.com
SP:SPX
by SpyMasterTrades
38
ES Daily Harmonic Elliott Wave AnalysisOverview: WHAT A DAY! in the update of yesterday, I had the idea that we are in wave (I) of c of Z. The price was following our expectations of the structure so well in the past few days that it prevented us to consider the other possibilities. Today, the count got invalidated. Update: now, I see that we are still in wave b of Z, developing as a double zigzag. We are in wave III of (c) of b. Note that the other possibility is that market has bottomed (for now I consider it as a case of very low probability). Either case, we will run to the downward trend line and the reaction of price to that zone is the key to decide.
CME_MINI:ES1!
by bamdadsalarieh
ES Daily Harmonic Elliott Wave AnalysisOverview: the major count I have on the daily chart is what we have since Jun 12th, meanwhile there have been changes only to the subwaves as they developed in time. In the update of yesterday, I expected that we need another push higher to peak for wave b of Z of (B), however, I warned that if we lose the ascending channel, we have peaked. Update: I see that we have peaked for wave b of Z of (B) and wave c of Z of (B), meaning the last phase and also what I believe to be the most violent phase of this bear market has started. Looking into the hourly chart, we are in wave 3 of a of (I).
CME_MINI:ES1!
by bamdadsalarieh
SPY S&P 500 ETF Price Target After The Midterm ElectionsThe Price Target for the Midterm Elections was perfectly reached, as you can see from the preview chart: I think there is still some juice left for this week, full of enthusiasm and promises of a soft landing from politicians. Then, by the end if the year, we will see Jamie Dimon`s "economic hurricane coming our way!" My price target for SPY S&P 500 ETF is the pre-pandemic level of $338. Looking forward to read your opinion about it.
AMEX:SPY
by TopgOptions
3