Chicagostock Trading

Chicagostock Trading

How the 30 Year Front Ran QE2-QE3-Taper

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As seen in the above chart, every move regarding QE was front run by the bond market, with the exception of the 1st QE in 2008 that pumped bonds from 112 to 141. When QE2 was announced the market moved lower, from 135s to 116s. September 2011 "operation twist" was announced, with the market having front ran the news 30 points higher to 147.  This eventually led to a period of consolidation as the market dropped to 136 before running up to new highs of 152 just in time for the announcement of QE3.  Another pullback was seen, down to 140 as the news was sold.  With talks and rumors of tapering QE in 2013, this accelerated the downfall into lows of 128, below its 200day weekly moving average.  In September 2013 the Fed surprised the market by not tapering QE.  This led bonds to unwind and squeeze shorts, reversing from 128-133, back to retesting major resistance at the 200day moving average.  The reversal and squeeze of shorts gives new buyers an area to defend down using the lows below 128 as the exit.  Objective would be to retrace 50% back to 13900. If the bond market did get oversold as it got ahead of itself expecting no tapering, then the retracement seems reasonable, maybe even to front run another meeting of no taper or even increase of purchases.

 

 

 

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As seen in chart above the 30 year recovered its highs of 13316 from August 27th, rounding out a bottom.  This reversal back through this high was done by the surprise of no taper and shorts being squeezed. Over the past 2 weeks the market traded sideways in attempt to consolidate the reversal and build a base for new buyers to step in.  The longer the market holds above 133 the more of a base it builds and shorts it lures to force a squeeze.  New buyers have to step in to build this base for a breakout to expand the 133-128 range.  This expansion of 128-133 that shorts were squeezed from, gives room for new buyers to target 138-138, also a 50% retracement of the bond market from the May 2013 break down. First downside support seen at 13130 based off 12812 lows. Failure to hold lows shows a failure by buyers to step in with next major support at 12630, 12100.

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Knock-Knock

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As seen in the above chart, since the biggest correction of the year - 1685-1553, the SP500 has made higher lows and higher highs.  These higher lows have come as the pullbacks became more shallow with buyers desperate to get in the market.  After putting in a flat top at 1705 in July and falling down to 162475, this was the second higher low after June's lows, and ultimately led to another higher high.  The new highs were made as the Fed surprised the market with no taper and no Summers, capitulating shorts as the SP500 briefly took out the top of this pennant up to 172675.  Since then, the SP failed to sustain the move, reversing to fall back to where it broke out into those highs at 1682.  Coming back to this level gave new buyers an area to defend the pullback after seeing shorts squeezed up to 172675.  Thus far, buyers have had a hard time turning the market back up.  This has led the market to fall into its rising trend line from the June lows, giving another attempt at "higher lows".  This time around, this trend line should not hold.  Why? Because not only did we have a failure to sustain the move into 172675 to create a bearish weekly engulfment which have given bears an area to defend up to 1690s, but we also have bulls who are attempting to buy this dip in front of politicians attempting to come up with a deal on the government shutdown.  Politics and markets never make a good combination. The bull buying the market now has to factor in this risk.  Friday saw the market close on its highs as algos squeezed shorts and bulls hoped for a weekend deal on the government shutdown. When this did not happen, the SP opened 8 handles lower on Sunday, putting in the 2nd Sunday in a row where the market gapped lower.  This has led the market to once again knock on its support trend line where bears are looking to breach the level and chase down to take out the June lows of 162475. Once this takes place, buyers from these levels will be shaken out and the market will confirm the move up to 172675 was a failed higher high.  From here the projection can be seen for a retest at 1690 to develop a right shoulder for a head/shoulder topping pattern. For this to take place again, the market must confirm weakness by taking out the August lows and breaking this trend of higher lows and higher highs.  For shorts to squeeze, 1692s must be taken out, which can then give way for a test of major resistance into 1710s.  A strong bear in control will not allow this to take place. The market now has someone to blame when moving lower, and that will be the GOP, while "no taper" decision will look smart, when in fact, thus far it has marked the highs.

 

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SP500 & Nasdaq Back to Bottom of Rising Wedge

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The struggle to top since the first correction in May from 1685-1553, being the most violent of the year, led to higher lows and higher highs as new highs squeezed shorts and every dip became more and more shallow. Buyers continued to pile into these dips making them more shallow, afraid of missing "the next leg up". This recipe is what makes the rising wedge, and a recipe for disaster as bulls and bears make money, but hogs g slaughtered. Thus far the surprises from the Fed on "no summers" and "no taper" have held as the highs as shorts capitulated into 1726s and market gave it all back the following week. Bulls have another opportunity to make a higher low here as the market comes into this support line from the June lows. Failure to hold the August lows of 162475 break the wedge to give way for a test of the June lows to confirm the failed higher high up to 1726.

 

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Nasdaq chart shows breakout above rising wedge to squeeze shorts and move back inside wedge to retest support.  This can lead to a water fall effect with confirmation of top on a break of 3055.

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SP500 Market Update

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The Emini SP500 rallied once again into the top of its resistance line from the past 2 highs this year on the surprises seen 2 weeks ago with "no summers" and "no taper".  This led the market into highs of 172675 as shorts capitulated, before seeing a reversal that retraced the market back to where it broke out.  Last week, the market fell to take out the lows of 168775 based off those weekly highs of 172675.  This retracement gave way for new buyers to come into support the market post the short squeeze as it came back to its breakout point, however the weekly close below 1693 established a bearish engulfment on the weekly charts, and the close below 168775 further setup bearish signals.  This sees the market coming down to test its major support of 1668 based off the 162475 lows prior to making these new highs. The trend remains up as the rising wedge tightens. Short selling remains aggressive and going against the trend until the market loses the 162475 pivot low prior to the highs. Once these lows are taken out, the market sees next major support down to 1615, followed by 1553 from the June lows.  A breach of the June lows at 1553 is confirmation of this rising wedge being the top to give way to the Cyprus lows down to 1530. Going forward, 1688 comes in as first major resistance, followed by 1713.  The fact that the market gave back all of its "no taper" squeeze, shows wall street is losing credibility in the Fed as they appear to be "all in" with their QE programs. This is where new/fresh buyers need to step in to continue upside momentum.  The 2nd half of the year has established a bullish bias as it has closed above 1693 for 7 days. To reverse this bias, the market must see 7 day closes below 1613.75.

 

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Nasdaq's Rising Wedge

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After running through 3050 in July, Nasdaq continued its run into August printing early highs of 3150 before falling back to 3050.  This led to a failed breakdown as the market found support at it's old resistance and turned the month of August into a consolidation month with a range of 3050-3150.  To start September, the pressure was put against the tops at 3150 which eventually gave, seeing the Nasdaq future trade up to 3213 today.  The gap open higher was above its rising wedge which led sellers to come into take profits and bring the futures back down to fill the gap from last friday.  This rising wedge should be taken with caution as the market presses the tops and the wedge tightens.  Going forward, 3150-3050 is new range for Nasdaq to hold to continue the upward momentum. To continue this range expansion of 3150-3050, this gives room up to 3250.  Line in the sand comes at the August lows just below 3050 as a break below this shows the market failed to hold the consolidaiton range and turns the breakout above 3150 as a failure. Major downside support seen within 2920-2870 with stops below the June 281775 low as a breach of this low sees a break of the 200day and a shift in trend momentum. Based off Monday's 3213 high, 3196 is a new level of resistance off these highs.

 

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