Chicagostock Trading

The year of 2018 has been a year that has lured in buyers, only to trap these buyers as sellers took profits into the rallies.  In the beginning of the year, we saw the market stampede from 2700, through 2800 into a high of 2878.  The move over 2800 (the 6 month volatility window), lured in buyers as it established a bullish 6 month bias, that were forced to defend pullbacks.  These buyers turned into "bag holders" a term used for late buyers, as the market fell below 2800 to trap the longs.  Liquidation below the year low came fast.  Reversing the 6 month bull bias, and turning 2800 into resistance as buyers were trapped above, creating overhead supply.  For the rest of the 1st half of 2018, the market was walked higher, from 2529 up to retesting 2800 before going into the 2nd half of 2018.  In the 2nd half, July, new volatility windows were set.  Once again, the market broke through its upper vol window (2816), establishing a bullish 6 month bias and once again luring buyers.  This time around, buyers were able to convert 2800 into support, allowing a move to overcome the January 2878 high.  The breakout over this high lured in new buyers and stopped out shorts, pushing the market up to a high of 2947.  After failing to overcome this high in October, falling short at 2944.75, the bottom fell out, seeing the prior month low of 2865 (September) taken out.  Thus has once again led to a waterfall effect that forced buyers to defend the 6 month reversal window of 2737, based off the July low of 2698.  First test of this level saw buyers with their backs against the wall, forced to defend the level to prevent another reversal bias.  Bulls managed to squeeze the market back to retesting the 6 month vol window at 2816, however failed to overcome the level.  This once again has left buyers above the 6 month volatility window on the hook, showing more supply is trapped above, then demand.  The return to the reversal window at 2737 has saw buyers fail to hold, after using most of their ammo on the first test.  Buyers are out of ammunition.  How many more times can they double down?  This has led to the July low of 2698 to be taken out and as of now, the market has closed below its 6 month reversal window of 2737 for 2 days.  5 daily closes below reverses the 6 month bull bias, giving way to expand the market lower once again.  The correction in the market began in February.  However the market spent the next 7 months grinding out shorts and luring in new buyers.  With shorts being stopped out as new all time highs were made, new buyers are again on the hook with the failed hold of the September low at 2865.  

Buy the rumor, sell the news? 

Consumer Confidence is highest since Sept. 2000

— zerohedge (@zerohedge) September 25, 2018

As seen in the monthly chart above, the "Trump rally" started in November of 2016.  Seeing the market breakout from 2170 into a high of 2878 in January of 2018.  For those that follow our work, we pointed out how the Trump V bottom on election day projected 2300.  Obviously the market went much higher, however the buyers that came in to start January of 2018 were the late buyers that panicked in.  They were corrected down to a low of 2529 in February.  From this low, the market spent 7 months grinding out shorts as the market was walked up to take out the January high, luring in new buyers, only to fail in holding above and turning right back down to take out the July low.  This has created a "failed breakout" as new longs above 2800 are now on the hook.  Rallies up to the September low of 2865 provides new resistance for sellers to defend and buyers to overcome to recover the trap above.  Next major stops in the market are seen below the year low of 2529.  Below this low, opens the door to retrace the "Trump rally" from 2200 back down to that level.  Big move? Yes.  Impossible? No.  No guarantee this will take place, however doing so would retest where the market broke out and provide buyers an opportunity to defend the breakout.  In the long run, this would be considered a "healthy" correction.  Unless you think the market going up every month is healthy.  

If you want to see how the October 2018 correction started, check out this link: https://t.co/z3RZmSa8mq

2018 January Correction: http://www.chicagostocktrading.com/blog/sp500-january-2018-mirrors-january-2016-1.html

2016 Election V Bottom: https://twitter.com/Chicagostock/status/801150246906687489

2016 February V Bottom: https://twitter.com/Chicagostock/status/701882994844311553

Buy the rumor, buy the news? 🤔 https://t.co/HZQm7teq0Y

— Chicagostock🌐 (@Chicagostock) September 25, 2018

$ES_F Update pic.twitter.com/CJFZcqRl3p

— Chicagostock🌐 (@Chicagostock) October 15, 2018

$ES_F Failure to overcome the 9/21 high and failure to hold 2917, given way to complete 2887 inv C/H objective. Repeats January/March action. #FOMC pic.twitter.com/yEo27vl5xz

— Chicagostock🌐 (@Chicagostock) October 8, 2018

When Cohn resigned, the SP traded to a low of 2681 before turning up to close at 2723.  The following day, March 8th, the cash market opened above 2730, leaving shorts from Wednesday trapped as the market settled at 2744.  The following day on NFP Friday, the cash market opened at 2759.75, forcing shorts to cover as the market used trapped shorts to fuel a move through the prior high of 2789.  After taking out shorts above 2790, new buyers were lured in on the breakout, this breakout ran into testing major resistance from the February 1st gap of 2822.  By failing to overcome the level, the market showed more supply still trapped above, converting the level into resistance as the market fell back to 2745 to retest the NFP low of 2735.  Over the last 3 trading days, the market fought to hold 2745, however was unable to overcome 2768, leaving buyers from last week on the hook.  This also gave the opportunity to repeat the pattern seen on Jan 30 - Feb 1, creating an inverted cup/handle pattern.

The SP500 started this year, zooming through last year's high and charging up to 2800.  This 2800 level is the 6 month volatility window in which 5 daily closes above established a bullish 6 month bias, forcing buyers to buy the breakout. The bias was established on January 24th, when the market completed its Cup/Handle target created on January 17th, after recovering its prior high of 280850 based off the January 16th low of 276925.  The market expanded this Cup/Handle up to 2846, seeing 2 days of consolidation, before expanding higher on Friday January 26th.  The breakout over the prior ATH of 2855 lured in new buyers, in which were caught when the market fell back under fell back under the January 24th low of 282550.  Over the last 2 days, buyers have fought to defend this level, seeing the market fall back to its Cup/Handle breakout of 2810 in which buyers defended, however were unable to overcome 2840.  Today the cash market opened lower, leaving longs trapped above and forcing sellers to chase lower, giving way to fall back under 2810 and target sell stops below the January 16th low of 276925 that began the move up.  By falling under 2800, buyers who bought the breakout above are now on the hook as the market falls back to test its 6 month pivot of 2751.  Buyers will be forced to defend this level, to prevent further damage, however as the Midcaps are showing, a move below the 6 month reversal window of 2717 and 5 daily closes below, will reverse the 6 month bullish bias into a reversal bias, giving way to expand the range of 211 (2667-2878), down toward 2456, which retraces the market back to test its breakout from September.  Rallies back to 2800-2810 now offers new resistance as supply is caught above, for buyers to overcome and sellers to defend.  Buyers will need to squeeze shorts through the February high of 2837 in order to get another shot at the high.  Failure to overcome 2800-2810, leaves longs vulnerable to see a shakeout under the 6 month volatility window of 2717.

Santa Claus came a week early to Wall Street with the SP500 breaking through 2665 on Friday.  As seen in the above chart, since the September low of 2485, the market expanded its rally into the November high of 2594 by 100% as it ran into 2665 earlier this month.  There was an initial break off the level that caused the market to fall into 2605 which was fueled by "fake news".  The market recovered off this low to make another run at 2665, before pulling into test 2620 as the November 29th low prior to seeing the break down to 2605.  This level held, trapping shorts below as buyers marched back to press against 2665.  The breakout seen this past Friday through 2665 has the market testing its 127.2% fib at 2694, with the 161.8% extension seen at 2732. Last week's 265175 low is now key for any downside shakeout/reversal.