1- DOW JONES CUP/HANDLE TARGET 20K
1- DOW JONES CUP/HANDLE TARGET 20K
HOW DID THIS:
GET TO THIS?:
Let's take a look at how the oil short squeeze took place. In February, oil broke the January low of 2756, falling to 2605 on February 11th. Just as oil was testing and ready to break 26, the UAE Energy minister came out with remarks that they were willing to cooperate on production cuts. This instantly reversed the market off the lows to see it recover 30 in the coming days. Dubbing this the "OPEC put" as it clearly showed members of the organization were attempting to defend 26.
The move, setup a failed breakdown, leaving shorts below 30 trapped:
Crude oil chart sent to clients on Friday... pic.twitter.com/rDqZjno0VU— Chicagostock (@Chicagostock) February 17, 2016
In December’s article “The Yellen that Stole Christmas”, the point was to show how buyers in the SP500 were caught above 2040, and needed a Yellen rescue. The market attempted to breakout to start December, however the rug was pulled from underneath as Yellen reiterated a rate hike later in the month. After bluffing the market for 2 years on this rate cut, the call fell on many deaf ears. So it was. Buyers were left caught at higher prices, betting on a “Santa Claus Rally” only to be hoping for Yellen to save Christmas. For the first time in 6 years and exactly 3 years from December 2012’s FOMC that placed a 6.5% target on NFP for a decision on Fed Funds rate, the FOMC reset the market and hiked the Fed Funds rate by a quarter point. Bulls did not get what they were looking for and saw the market fall back to retest 1982 support. The level barely held on December 18th, as the market rallied back for Christmas holiday and the “Santa Claus Rally” was actually a gift from Yellen for stuck longs above 2040 to “breakeven”, or as we like to call it “get out of jail free card”.
When the FOMC decided to place a 6.5% target on NFP rates to justify raising the federal funds rate, the SP500 was trading 1427, gold 1718, US dollar 7985, and 30 year bonds at 148.
“……” (FOMC 12/12/12 source).
Just days after this release, we highlighted the weakness in gold: Whats With Gold? FOMC Spooks Market. Double Top Eyes 1250.
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(click chart to enlarge)
The SP500 has come a long way. Starting the year at 1838 to put in lows of 1732 and make highs of 2079 as of recent. The 2nd half of the year has seen volatility expand. July began just as January did, a very tight trading range followed by a small pullback before rallying into new highs. Difference in the 2nd half was the new highs was rejected in September, with the market falling apart in October to take out the August low and fall into 1813, testing major support based off the April lows. The break of the multi year bullish channel, was followed by one of the most massive and violent short squeezes ever. Just as early October the market put up a strong fight with violent short squeezes before finally letting go down to 1813, the move back to 1970 was just as violent. The reversal from 1970 to 1813 and back to 1970, was a major short squeeze and V shaped bottom. After this short squeeze, it was time for the market to take a breather, consolidate, attempt to build a base and support for new longs to join for a new leg up. What happened was a different story. Rather then allowing buyers this opportunity… Halloween 2014, just as the SP was pressing against major resistance against the September highs, BOJ came out with an expansion to their QE program, lifting the lid above the September highs and seeing the SP trade through 2k for the first time ever. Rather then allowing the cool off period at 1970, the BOJ squeeze forced buyers to chase the market above 2000. November made early lows at 1995, before grinding up to into highs of 2072 going into the Thanksgiving holiday. During this period, the cash market worked very hard to open and settle the market at its prior close, walking a very tight line. Following the holiday, the market saw a gap open lower down to 2048, only to becoome a bear trap as the following day the market squeezed back above 2060 to save cash buyers and grind out new highs. Draghi came out on the 4th of December, touting a ECB QE program in January which led the market to scetch out another new high at 207725. All of these highs were made by a few points and saw profit taking into them. The following day was NFP and the SP managed once again to squeeze 2077, print highs of 2079, and fail to hold above. This led into a break out failure, seeing the market fall back to retest the December 1st low of 2048.
The SP’s move below the Dec 1st low of 2048, has confirmed a short term failed breakout above 2077 and a double top. The move now is testing major support down to 2015 based off the November low of 1995 that led to the chase higher. The current break has caught longs off guard and sellers are looking for blood to press the market lower. Failure to hold the November low of 1995, confirms a failed breakout above 2000 as the market retraces back below the BOJ QE breakout and leaves buyers who chased above holding the bag. First major downside support is seen down to 1977 to retest the breakout point from October’s V bottom 1970-1813-1970. The question that will arise and will be seen is will there be buyers left to buy the market at this level, after the BOJ forced them to chase above 2000? This will leave for a thinner bid on the downside and more longs who are caught giving way for volatility to expand. A failure to hold 1970 gives room down to retest the 1813 low with major support down to 1840. The objective for the sell side is to take out these lows and test the 2014 low of 1732 with support coming in at 1750. To reverse current momentum, buyers need to recover above 2050 to retest resistance at 2068 based off the highs of 2079. The objective for the sell side is to settle the market below the December 1st lows to establish a weekly sell signal and bearish engulfment.
The recent reversal in the SP500 has reminded us of a similar time the charts and reversal felt and looked the same. The above chart is from 2011. As seen the market made an early high of 1335 in February, correcting down to 1241 before rallying back to new highs. New highs were made on what was called the "Bin Laden" high. On the news of his capture, the SP printed the highs for the year at 1373.50 and turned lower to retest the previous 1335 lows made in February. This retest was followed by a "U" shaped reversal that recovered back to where the market failed at 1348 on the 1st of June. This reversal failed to stabilize and push through the highs, leading into what developed the right shoulder for the 2011 head/shoulder top and crash down to 1080 that was fueled by the debt downgrade. QE 2 ended in July 2011, just as QE 3 is expected to end 10/29/14.
After attempting to hold last Tuesday, the market rallied to 189275, only to meet major resistance against the broken August lows of 1890. This led to a narrow range last Tuesday, barely holding Monday's 186375 low. Globex saw the market break this triple bottom against 186375, giving way for the 189275-186375 range to be expanded down to 183475 (189275-186375=29, 186375-29=183475). The market fell on Wednesday to complete this target, however continued another 20 handles lower into 1813 to test major support from the April lows, before seeing a squeeze back to the 1863 level. The following day saw a retest of the lows which held, creating another range, 1863-1813. The range gave room for the market to expand up to 1913 (1863-1813=50, 1863+50=1913), or down to 1763, depending if the ES was able to breach the top range at 1863, or bottom range at 1813.
On Friday the SP500 recovered above 1863 and attempted to target Tuesday's 189275 highs, running into 189175. The break above 1863, gave the market room to expand up to 1913.
On Monday the SP took out last Tuesday's 189275 high and found support down to 1870 before rallying into close at 1900. Today, 1 week after the failed 189275 high made last Tuesday which was followed down to 181300, we have recovered back above those 189275 highs and completed the short term range expansion target of 1913. The move now retests major resistance based on the double top made at 1930, along with revisiting the scene of the crime, being the 1920 major support level that was tested early October before finally giving out and falling 100+ handles. Old support becomes new resistance. A move through 1980 is needed to reverse momentum and create a V bottom on daily charts as rallies into 1920-1958 offer sellers an area to defend.
A few weeks ago, before starting October, crude oil was sitting back at its 2014 lows of 9124, after rallying up to 10768, only to fail the retest of the 2013 summer highs. This failure, and upside down U turn, led to a small consolidation period as short covering and new buyers materialized to put in a tug of war. The 2014 reversal of 9124-10768 has a 1644 range. Taking this range and subtracting it from 9124, this gives downside objective of 7480 to complete the expansion. This takes place as the market made a technical reversal for the year of 2014 and failed to hold 91, seeing a flush, and expansion of the 2014 range, in the opposite direction. First level of major support is seen at 8090 with sell stops under 7728 to complete 7480 objective. Short term this support level offers an area for shorts to cover and buyers to look to defend, for a move back to retest 84-88 resistance, up to 91. Failure to hold 7728 gives way to complete 7480 expansion target, which takes out the 2011 7495 low.
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Took all day to get that fill, however 7375 provided a level to defend on the short side. Since the risk is 4 points, if the market gives us 4 points in return, we scale out to lock in base hit and reduce exposure. Stops lowered to entry, allowing market to either continue lower to give the "homerun" setup, or move back to exit trade.
Recall last week, just before the POTUS national address, crude oil fell into new lows for the year by 2 cents at 9122. The next day after the address, oil fell further down into 9043 before turning into a short squeeze as shorts began to cover their positions, sending the market back above into highs of 9344.
On September 10th, we wrote "With the Presidential address tonight highlighting need to attack ISIS, this gives bulls their last hope for a short squeeze/rally."
"Buyers must step in here to reverse through 9400 in order to trap shorts and attempt a short squeeze through 9600 to test next major resistance into 99-102."
In the above daily chart, the market shows the pierce of the 9124 lows on the 11th and the move up to 9367. Today, the market retested those lows, allowing sellers opportunity to continue as well as buyers an area to defend. The retest of last week's lows saw sellers fail to push through; showing some exhaustion on their part, as well as seeing buyers defend the retest. This has thus far led to a squeeze back to the 9300 level allowing aggressive buyers opportunity to scale out.
Weekly chart shows clearly defined downward channel in CL from the failed retest of the 2013 highs in June of this year. This week the weekly bar is seen pulling into retest last week's low and finding a bid. Small short covering as the market breached the 2014 lows and an attempt to create a failed break down under the January lows. Buyers must look to recover and close above last week's high of 9394 to attempt a trap under the level and look to target 9600 for stops and a retest of the broken trend line from last year's lows with room to retest the broken 6 month vol window up to 10080. Short term resistance met into 9280, squeeze through 9367 confirms Monday's lows as a successful test of last week's low. New downside support based off Monday's cash session down to 9175 with sell stops below 9117. Failure to hold the year lows and get through 9400 gives next major support into 8880.
Crude oil made new lows for the year by 2 cents on Wednesday at 9122. This is the third time the market has tested this level, June 2013, January 2014, and now. To start this year, the market took out last December's low and turned the breakdown into a failure to go into a short squeeze leading up to 10754. This was crude's second chance to retest last year's failed highs of 11224 as it tried to break through its weekly pennant to the upside. The retest rejected with the highs being placed in June and the second half of the year July, beginning the liquidation lower. The move down has been relentless as the market has been driven down below its weekly pennant and broken its trendline from the 2012 lows. Short term, buyers must hold this new low by 2 cents at 9122 and look for a move through 93 in attempt for a short squeeze to retest 9400. Failure to hold 9120 gives room into next major support at 8880. With the Presidential address tonight highlighting need to attack ISIS, this gives bulls their last hope for a short squeeze/rally. ISIS continues to sell crude at deep discounts on the black market.
Weekly chart on crude oil shows a clearer picture of the failed retest and reversal below the 2014 lows. Buyers must step in here to reverse through 9400 in order to trap shorts and attempt a short squeeze through 9600 to test next major resistance into 99-102. Next major sell stops in the market are below 8590 from April of 2013, which gives room down to major support at 8080 with sell stops below 7728 as the June 2012 lows. Since the trend line from these lows was taken out, a pullback down to retest these lows at 8100 would offer buyers a strong level to attempt a bounce. As July goes so does the second half of the year.