Chicagostock Trading

After the Nasdaq put an all-time high in November of 2021 at 16767, the market dropped 37% in the year 2022 to a low of 10484. The Fed has continued its hike program, which has raised rates to a 22-year high while signaling further hikes would be data-dependent. Investors are assuming they are done hiking interest rates. “There is belief that the Fed is probably done,” said Timothy Graf, head of EMEA macro strategy at State Street Bank & Trust Co. “Markets are also seeing a US economy that’s held up far better than the consensus outlook. They are pricing that we have achieved a landing that everyone thought would be impossible to achieve.” Meanwhile, earnings continue to beat analyst estimates. On top of that, GDP rose in Q2 at 2.4% above estimates of 1.8% and higher than the previous period of 2%, showing an expansion of the US economy.

This strong data comes as the market retests the failure from November of 2021 where it trapped buyers to bring up the question, have we returned to "normal"? If you take a look at the chart on the main stages of a bubble, the Nasdaq is tracking it back to the return to normal phase. The retest of the November 2021 failure is key resistance for buyers to overcome, as well as sellers to defend, hedge, or lighten up on positions. We are at a point of testing supply and looking for demand as demand will have to keep up to continue the rally in any attempt at taking out the 2021 high.  Failure to push through and a failure at these levels can give way for another wave down that would be more fierce than what we saw last year, giving opportunity to retrace back down to retest the March 2020 high from where the market took off after the Covid breakdown. 

Since the financial crisis in 2009, the Federal Reserve worked overtime to prime the market with quantitative easing and low interest rates.  The punch bowl was spiked until the music suddenly stopped in February.  Now that the music is off, people are waking up to the fact that the emperor has no cloths.  After a series of hiking rates last year, the Fed cut rates back to zero, and now doing daily $1 trillion dollar repo operations in an attempt to support the market's.  So far it’s not working, and it will not. 

You see when the market bottomed in March of 2009 at 666 and after measures taken to stimulate the economy, the Fed never took their foot off the gas.  This is told by looking at the open gaps that have been left behind. Every attempt to correct, was followed with a higher open that never looked back.  This not only left short sellers on the hook, but forced buyers to chase the market higher.  For bulls, this was no problem, every dip was bought and the overall direction of the market was higher.  The problem with this is that rather than letting the market digest its gains and consolidate before seeking its next move, the upside squeeze was forced and continued through the Fed’s easy money policy.

Needless to say, the actions of the Fed did help the market recover from the financial crisis, providing liquidity in getting the market back on its feet.  The market recovered from its 666 to a high of 1468 in 2012.  In December of 2012 the Fed attached a 6.5% unemployment target to raise interest rates.  The gold market was "spooked", losing 1500 and beginning its correction lower.  The stock market took off in January of 2015.  The market opened higher in January and never looked back. This led to a rally into 2000 in 2014.  The NFP target of 6.5% for the Fed to begin raising rates was reached.  Did the Fed begin raising rates? No.  They pulled it and said the target was outdated.  During the period of 2014 up into the election of 2016 the market attempted to digest its gains and correct, however every pullback into 1800 was met with central banks throwing stimulus at the market.  Why? In 2014 the ECB imposed negative interest rates. In October of 2014 the Bank of Japan surprised the markets with $700 billion in stimulus.  In December of 2015 the BOJ repeated this action, surprising the markets with more stimuli. Why did we need all this aggressive action by the central banks when the markets had not only recovered into all-time highs and jobs numbers were improving? 

The action by the central banks during 2014 into the 2016 election, did not allow the market opportunity to correct in search for support.  In other words, there was no price discovery in the “market”.  If there was no price discovery, was it even a market?  By not doing so, this did not give buyers a chance to get in at lower prices.  Who cares right? If the market continued higher, no matter where you bought the market you were making money over the long run.  Well this created the bubble that were seeing pop today.  The election of Trump in 2016 was followed by aggressive policies that gave businesses opportunity to thrive.  Manufacturing jobs which were dubbed as gone were beginning to return, cutting regulations, and pro market policies led the market to expand away from 2000 into highs of 2878 in January of 2018 after Trump’s first year in office. 

What the central banks did during 2014-2016 by holding the market and not allowing for a correction, gave way for the bubble to be created as the market expanded away after the election.  The market attempted to correct in 2018 after peaking at 2878 in January, falling to a low of 2316 in December.  Volatility returned and buyers that chased the market in 2018 were either shaken out, or took pain as they saw the market go against them. Worried traders and investors began to get bearish.  This turned into a massive trap as the markets put in a V bottom in January of 2019 to set a bullish 6 month bias, expanding the market higher into new highs of 2969 in June of 2019.  Squeezing short sellers and to the surprise of longs, seeing the market recover into new highs.  Once again in the second half of 2019 the market attempted to correct, in August the market established a bearish bias that lured in short sellers, failing to see expansion in October.  As the market attempted to correct, what did the Fed do? Did they allow the market to discover price? Allow it to function normally? Whether it was to correct or not? No.  The Fed announced plans to expand the balance sheet and insisted it was not QE. On November 1^st I asked a question, was a short capitulation coming? I asked this because short sellers from August and October were caught on the wrong side with the market reversing its bear bias late October and those short sellers were fuel to expand the market higher. The market never looked back.  Short sellers were forced to cover, expanding the market up to a high of 3245 in December. 

So after the market attempted to correct in 2018, longs were given a scare, but were saved in 2019.  If they saw stocks go against them, they were given a second chance to get out.  You know the saying, bulls make money, bears make money, and hogs get slaughtered? Well 2019 was a gift from the Fed to bulls to take their profits.  What do you think happened? Did bulls say ok now it’s time to get defensive and take profits? Absolutely not.  Bulls got greedy.

 In an article from CNBC on January 19, it said:

“Investors with $1 million or more in brokerage account are significantly more bullish than they were a quarter ago”

In the article, it states hedge fund billionaire David Tepper saying “I love riding a horse that’s running.” Later in the article he is quoted saying “the market will get to a level that I will slow down that horse and eventually get off.”

Source: https://www.cnbc.com/2020/01/18/why-wealthy-investors-are-increasingly-bullish-on-economy-to-start-2020.html

You think the market slowed down to give him an opportunity to get off? Anyone riding that horse got violently thrown off in March.

After shorts fueled the rally in 2019, the market was setup on the highs to start the year of 2020.  I shared our volatility windows we use to indicate bull and bear levels and 3361 was the upper window.  The market needed to hold above it for 6 days to establish a bullish 6 month bias and doing so would not only lure in late buyers, but force them to defend pullbacks.  As I stated in the article, volatility windows can be used to trap late buyers and sellers.  Once the bull bias was established, buyers got lured in and they were forced to defend pullbacks.  On February 24^th, the market fell into its reversal window at 3225 which was key level for buyers to defend to sustain the bull bias.  By losing this level the following day, the market trapped buyers on the year and this has accelerated the move on the downside because shorts were sidelined and the boat was tilted leaning on the long side.  When everyone is caught on the opposite side of the market, this provides opportunity and fuel to expand the market into the opposite direction.  Not only did the market fall back under the November short squeeze at 3000, but it has fallen below the December 2018 low of 2316, reversing all the gains last year, just like that.  Now with short sellers out of the way and the market trapping buyers in January and February were back to retesting levels from 2018 when the market originally tried to correct.  Anyone still holding stocks is now forced with a dilemma.  Do they take the loss, or hold in hopes of the market coming back?   This is what getting married to stocks looks like.  They are now married to their positions, and their thesis is, it’s a long term investment.  That may be so, but who knows when the market will return back to the prices set earlier in the year. 

For the market to bounce, buyers need to be fearful. You cannot expect the market to put in a bottom if buyers that got caught at higher prices are still cocky in thinking averaging down will play out in the long run.  The long run may be much longer and what is the point of getting into an investment if one is not flexible in getting out and trying to get back in at lower prices? Its greed and it’s becoming attached to a position. Many don’t want to let go of their price average from accumulation over the years, thinking the market will never return back to those prices.  The market bottoms when you are afraid to buy stocks. 

So the market has lost all of its 2019 gains, and the Fed is throwing everything but the kitchen sink at the market.  Cutting rates drastically back to zero, new quantitative easing measures, and none of it is working.  The emperor has been revealed to be without cloths.  They primed the market higher without allowing true price discovery, so now we will be getting that price discovery.  The only thing left to fight deflation is to devalue the dollar.  This is the last tool in the tool box for the Fed, the nuclear option. 

See Ben Bernanke’s speech titled “Deflation: Making Sure “it” Doesn’t Happen Here.”  In these remarks, there were 5 major points Mr. Bernanke pointed out as tools the Fed could use to fight deflation. 

1. Lower interest rates to zero
2. Buy securities from banks to expand Feds balance sheet
3. Increase money supply
4. Buy our countries debt
5. Devalue the US dollar

Source: https://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm

The market is now looking to do its repair work from the last 10 years it was not allowed to do so.  Below we will highlight the open gaps as key reference points to the downside.  First major level support test is seen down into 1900 which retests the 2016 low of 1802.  Failure to hold this sees next major level into 1200 to retest the October 2011 lows of 1068, followed by 830-730 to retest the March 2009 low of 666.  Obviously we do not want to see this happen, but retests are inevitable.  It’s just a matter of time. Falling down to retest the low from March of 2009 would mean we are in a very ugly place in regards to our surroundings, jobs, economy, etc.  All thanks to whom? The central banks, for not allowing the markets to function properly by retracing lower before moving higher, but forcing the market up on easy and cheap money.  Kicking the can down the road, well we are finally at the end of that road and there is nowhere else to kick that can too.  Any bounce back to 2800-3000 would be key resistance to retest the bull traps set this year.  The supply caught above in the market is overhead weight and resistance that will need to be recovered by new buyers to recover and reverse. 

Welcome to the new decade. 

Corona Virus popped the bubble, but who blew that bubble in the first place? Had we not pumped this market with cheap money, we may not have reached such upside levels, but the velocity on the downside would not be as great nor the pain it has created.

The sun will come up.  Each time the market was limit down last week, the sun was still up and the birds were still chirping. We’re going through a cleansing in the market and trying to return back to price discovery.  It may be painful, but it is our medicine now to get better later.  Every now and then this takes place, and those that play it smart benefit in the long run. Let the dust settle and you will find the opportunities you are looking for.

The loss of confidence in central banks may cause people to reconsider how they are structured.

The following charts highlight the major downside gaps left open. Gaps are created when the market opens above or below its prior low or high.  Fueled by easy and cheap money, the market did not fill these gaps during the time, forcing buyers to chase.  These are key reference points for the “market”.

11/04/2016 Open Gap 2086.50

06/28/2016 Open Gap 2029

06/27/2016 Open Gap 1994.50

02/12/2016 Open Gap 1860.75

02/06/2014 Open Gap 1769.75

10/09/2013 Open Gap 1656.50

03/04/2013 Open Gap 1526

12/31/2012 Open Gap 1425.75

11/16/2012 Open Gap 1360.50

06/05/2012 Open Gap 1286.75

12/19/2011 Open Gap 1201.00

11/25/2011 Open Gap 1162.75

08/31/2010 Open Gap 1053

07/14/2009 Open Gap 903.50

03/09/2009 Open Gap 677.75

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

On Thursday, the day after the FOMC statement, we review the intraday action in regards to Chicagostock's Volatility windows and pivots.  The highlighted blue box, is the cash market open, NYSE 930 AM.  After the open, the cash market had trouble overcoming the intraday pivots, seeing the range act as resistance.  This led the market to fall into the lower Vol window which was met with a defensive bounce.  The defensive bounce gave way for a retest of the open, giving sellers an area to defend and buyers major resistance to overcome.  For buyers that picked up the initial test of the lower Vol window, this provided a bounce to take some profits into.  Second or third attempt at the lower Vol window, increases the odds of seeing the level failing. After failing to overcome the opening range, the market drifted back toward the lower Vol window which was taken out. In order to establish a bearish intraday bias, a 5 minute hold below the lower Vol window needs to be seen.  Sometimes the market can establish a bias, and bounce back to the open to again force sellers to defend their intraday trend.  In this case, the second test of the lower Vol window saw the level taken out, establishing a bearish intraday bias.  Since there was already an early bounce off the lower Vol window, there was not another one and sellers expanded the market lower, forcing longs to liquidate into the close. 

Since our last report on March 17th titled "Will President Trump Devalue the US Dollar?", the US dollar is down over 9%, falling from 100 down to a recent low of 90.79.  This does not mean a dollar devaluation has occurred, or will, however as we pointed out, there are risks out there that needed to be factored in, and the market is doing just that.  

Anyone old enough to remember the euphoric action on May 2, 2012 when Bin-Laden captured? $ES_F $SPY $SPX pic.twitter.com/8xMCd1AWzO

— Chicagostock (@Chicagostock) March 2, 2017

https://twitter.com/Chicagostock/status/837413741125828608

On March 1st, the SP500 gapped higher with an open at 238150.  This forced shorts to cover and buyers to chase prices above 2380.  The market rallied into a high of 2401, before it was retraced back the following day on Thursday. By retracing the move back, the market created an inverted cup/handle leaving buyers that chased the market above 2380 on the hook to see a shakeout down to 2361.  

Before Mr. Ben Bernanke became Fed chairman, he made a speech before the national Economists Club in Washington, DC. on November 21, 2002, titled “Deflation: Making Sure "It" Doesn't Happen Here.” In these remarks, there were 5 major points Mr. Bernanke pointed out as tools the Fed could use to fight deflation:

The SP500 took a breather last week. This came after seeing an explosive push on the first day of the month up to 2400, double topping at 2401 before turning lower...

HOW DID THIS:

 

$ES_F Daily V bottom. Expansion > 1920 = test of year high. #psa pic.twitter.com/w558cz49I0

— Chicagostock (@Chicagostock) February 22, 2016

GET TO THIS?:

Commented on StockTwits: $ES_F Completes V bottom objective of 2042 from 1920. $SPY $SPX https://t.co/j102MzSsXB pic.twitter.com/yEP6aGyTfU

— Chicagostock (@Chicagostock) March 19, 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 18^th, 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.  

“… the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent…” (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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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. 

Since reversing off the year lows of 1732 and through December's high to squeeze shorts, the SP coiled in a sideways range in attempt to find new buyers following that V shaped short squeeze.  The first peak high was made at 188750 in March on Non Farm Payroll numbers.  This was followed by a reversal down to 182350 mid March, before climbing back up to 1877 as the pullback was bought and the 6 month pivots turned into support.  Breakout attempt was seen early April, having to take the FRB chair to say stimulus is still needed to in order to trigger new buying to run the market into new highs setting up a jump ball on the NFP numbers that were released early April. New all time high were made by 5 points up to 189250, again on Non Farm Payroll numbers and was followed by profit taking and sellers pressing the market post NFP release. Both peak highs being made going into the jobs numbers that were both followed by immediate profit taking. The last high is more troublesome as new highs were made only to fail to continue higher, seeing a reversal back down to press and retest the March lows of 182350.  First test of this led to a bounce this week on the FOMC release the 6.5% unemployment target for the fed funds rate would be removed.  The initial reaction was an embracement by the market, seeing a bounce up to 1867 before running out of gas and reversing back down to close below the recent low of 183075 prior to that FOMC release.  Once again the market brushing off stimulus promises and a pull of the 6.5% unemployment rate that suggests rates can remain low longer. 

Going forward, pressure is being put now against the prior low of 182350 made in March to shake out longs and confirm a short term double top.  A weekly close below 1850 is bearish and creates a new range of resistance within 1850-189250.  Looking at the action made in 2014, with the early sell followed by the V shaped recovery that was fueled by shorts being squeezed, the market traded above those prior highs for 2 months in attempt to build a base and attract new buyers following the short squeeze. Failure to build the base and hold above the 2013 highs, suggests enough new buyers are not coming in to sustain the V reversal to expand higher.  If new buyers are not coming in, then the bus may be too full and this gives room to expand lower to target the year lows and confirm a failed breakout with major support at 1700 based off the October low.  Failure to hold the 2014 low of 1732, breaks the series of higher lows the market has enjoyed since the last major low of 1553 in 2013 when investors feared tapering before being squeezed up 300 points.  By taking out the last major low at 1732, this breaks the upward momentum, and gives room to move down into testing levels from 2013 and attempting a gap fill down to 1420.  Support off the year lows is seen down to 1750 for buyers to defend.

VIDEO: Watch Chicagostock's day trading signals on both peak highs.

Just a little over a year ago, in December of 2012, the Fed for the first time during its low interest rate policy, attatched a 6.5% unemployment rate to its fed funds rate.  As highlighted in December of 2012, this spooked the gold market, which at that time was trading 1655 with a range of 1526-1798 in 2013.  Bonds on the other hand closed the month of December at 148.  Since this new FOMC policy, both gold and the 30 year bond market front ran the unemployment rate target, seeing gold break its 2012 range of 1526-1798 to expand lower, making lows of 1179 in 2013, and lows of 12723 in the 30 year in January.  On January 10th, 2014, the BLS reported an unemployment rate of 6.7%, down 1.2% from Dec of 2012, and only .2% from the Fed's 6.5% threshold.  So with gold and bonds moving ahead of this target, and now the target coming into play, it only makes sense to see gold and bonds recover and turn the other way.

30 Year bonds put in a failed breakdown early January as the lows from 2013 of 12801 were taken out down to 12723, and failed to hold.  This has thus far led to a reversal and short squeeze, seeing the market recover above 13100.  Overall trend remains down as seen in longer term weekly chart with major resistance for this trend coming within 13320-13524. Breach of this range will change trend and momentum in the 30 year, confirming the weekly double botom and giving room to retest the March 2013 lows at 14014.

Gold's 2012 range of 1526-1798 (272), was expanded (272) lower into 1254.  This did not stop as panic selling came in and gold saw a flush down to 1179 before quickly recovering up to 1434. For the next few week's, gold's downside pressure from its new found downtrend below 1526, forced the market to retest the 1179 lows. Tax selling also put pressure into the end of year 2013 as investors sold gold to lock in losses and balance some of their stock gains.  In January, just as the bond market made a new low, gold also made a new low down to 1181.4, however managed to hold the 2013 low of 1179.4 by $2.  This has thus far led to a small bounce, retesting resistance from the prior high of 1267.5 made in December.  Today gold ran into these highs but has fallen short in taking them out by .5.  A move through the December 1267.5 high confirms a short term double bottom and gives room to retest next major resistance up to 1380s based off the 1434 high in mid 2013 before falling back below 1200.  This 1380-1434 level will be huge for the change in momentum and trend. As a break above this confirms a double bottom and gives way to retrace back up to and retest the 1526 level from where the market failed. 

Just as in December of 2012 with gold at 1655 and 90% of community being bullish after 90% was bearish sub 1000, this did prove correct and we did see a correction down to 1179. So at 1179, down $744 off the highs and unemp rate reaching 6.5%, is this the time to be short gold? Opposite as majority of community is back to being bearish metals, this is the time to start looking back into gold, and picking up physicals.  A flush below 1179 can still be seen, but should provide opportunity for longs as a reversal after the flush would be expected.

In the aftermath of what was Bernanke's last testimony to congress, equity markets squeezed new highs for the year just as the testimony wrapped up. Most congressmen were applauding the chairman for his service, somewhat having the feeling of a farewell party. The question is, if the chairman is leaving, does this mean the QE party is over and who will be last to turn off the lights? The uncertainty of the next chairman and actions is unknown. It's been quite a ride for the year, opening above 1440, last year's resistance, and seeing a gap and go breakout. Moving through all resistance and squeeze shorts in the process. This took 5 waves in the first half of the year, with 2 being minor corrective waves as tops failed.. Shorts squeezed and investors piling in, forced into equities on a QE high. This saw record highs of 168575 last May before longs began to sell into the squeezed bid to take profits. Bernanke scared investors out on June 19th with worries of tapering QE, seeing the market reverse lower from 1649.  This started a shakedown and panic into testing major support based off 1530 which originally began the leg up through 1600. The bull strongly defended this test holding in the low 1550s to prevent the reversal in trend. The market was walked back up to the 1649 level just in time to give Bernanke a second chance on another FOMC release of July 10th, and creating a "V" bottom. Bernanke was able to calm the market enough to break through 1649, triggering a short squeeze to give way to take out the all time high from May.  The latest and "last" testimony to Congress from the Fed chairmen had the market sitting on all time highs.

The SP500 followed the Transports lower Wednesday after failing to take out 3 day highs and setting up a small flat top.  The bounce to test the highs was seen as Apple earnings led the stock to jump $20 higher, luring in buyers to the SP500 for a run through 1700, only to reverse lower and close below 3 day lows. The reversal has the market pressing against major support, within 1681-1665, based off last week's pivot higher.  Failure to hold this range sees weakness in buyers and a reversal on the daily chart.  This creates the potential for a double top with the market failing to attract new buyers after taking out the May highs.  New money at these levels have new risk of uncertainty of the next Fed chairman. Next support seen at 1650, followed by 1615 with sell stops below 1550. Breach of 1550 targets 1530 Cyprus lows and the pivot that led into these all time highs. Minor upside resistance 1688-1696, break through needed for buy side to continue momentum.

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Gold in 2008 was the first time the market breached the $1000 mark, hitting highs of 1033.9 in March just as the Federal Reserve Bank of New York provided an emergency loan to Bear Stearns to keep the company solvent from it's bets in subprime mortgages.  This was followed by a correction and liquidation in the fall just as the equity markets began to crash in September.  The panic and liquidation selling led gold to fall into lows of 681 in October before retreating back to retest the $1000 mark in February of 2009.  This created an Elliot Wave pattern that saw the first wave 651-1033, second wave being the corrective wave from 1033-681, third wave being the move back up from 681-1007, fourth wave which was a very small 38.2% correction of the 3rd wave, setting up for the fifth wave to try and continue higher.

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The fifth wave completed with gold moving from 865-1227.5 just as the Federal Reserve bank lowered their federal funds target rate to 0% in January of 2009.  This gave gold the fuel to move back through $1000 and continue this 5th buying wave to take out the old $1033.9 highs.  Showing gold's strength and proving naysayers who did not see gold breaching over $1000 again wrong.  As the 5th wave completed with highs of 1227.5, this led to profit taking and a small correction as gold corrected 50% of the 865-1227.5 move as well as coming back to retest the old 1033.9 highs with the gold making a low of 1044.5 in February of 2010. 

Back in December of 2012 on the 12^th, the FOMC released their statement that “… the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent…”.  This was the first time since having rates at 0% the committee attached an unemployment rate “target”.  Since this statement, gold made a high of 1725 on that day, and never looked back.  It has been straight down since then. But this was not the beginning of selling in gold.  This was just a catalyst for long term holders to take profits. As we pointed out back in December “What’s With Gold? FOMC Spooks Market, Double Top Eyes 1250.”   Again this was not the beginning of selling.  Gold had a target of just above 1900 when it created a “diamond” pattern in August of 2011.  This was a continuation of the parabolic stage the market went in after the debt deal passed earlier that month.  Sure enough gold squeezed through 1900 into 1923.7 and reversed down into lows of 1535.  This was a major shakedown in the market place and left a lot of late buyers holding the back at parabolic prices above 1700.  Throughout 2012, the year was one major consolidation period.  After an early high of 1792.7 in March, the market pulled down to put in lows of 1526.7 in May. Not ready to breakdown, the market squeezed shorts and rallied back to take out the March high and print new highs for the year at 1798.1.  These new highs for the year once again failed to push past 1800 and the failure turned into a double top attempt.  Since this 1798 high, gold has been in profit taking and selling.  When the FOMC released their statement in December, this just gave excuse to continue the profit taking and move lower.  To start 2013, gold attempted to rally, only to put in highs of 1697.8 and roll over.  The reversal in January of 2013 to break the year low of 1626, continued the selling pressure, targeting the 2012 low of 1526.7.  With the 2012 low of 1526.7 being taken out in April, this confirmed the 2012 highs against 1800 as a double top.  By taking the range of 1526.7-1798.1 or 271.4, this gave a downside target of 1255.3. 

Most recently, we have seen gold complete this downside target of expanding the 2012 range down to 1255.3.  Of course the market did not stop there and went into further selling as longs panicked and stops continued to be shaken.  This led the market to fall below 1200 into lows of 1179.4, almost retracing 61.8% at 1155 of the 681 to 1923 move.  The breakdown below 1200 after completing 1255 put the market into extremely oversold levels.  The bear in gold is not new, this bear has been around since that 2012 double top, and the trend down since that high has been a $618 decline in prices from 1798.1-1179.4.  Short term gold is oversold, thus the bounce being attempted.  Gold below 1250 gives investors who patiently waited for prices to turn lower an opportunity to come in and pick up some physical and or invest long term at a 50% discount.  Gold remains in major downside pressure until it can close above 1300.  Doing so can give way to squeeze late shorts and attempt to retrace the market back to the 2012 low of where the market failed at 1526.  This old support should then act as new major resistance, however gives an upside target for buyers sub 1250 to target.  Bottom line: As we were bearish gold in 2012, we are now cautiously bullish and like putting some powder to work.  Failure to hold 1150 sees next major support at 1126-1045. Regardless, gold was trading 1900 just a few years ago, at 1250, this is a steal. Yes we can move lower, but it will only allow more opportunity to buy at lower prices, and NOT at parabolic prices.

“Buy weakness, sell strength’

As soon as the SP500 hit its 100% Fib extension level of 1685.50, sell programs kicked in as the SP500 printed highs of 1685.75.  The move occurred after a squeeze through previous highs of 1673, seeing shorts capitulate which gave way to the 1685 print.  Smart longs sold into this bid to take profits. With longs taking profits, shorts already being stopped, the market fell down to retest its open. After trying to retest the highs and failing to find buyers at 1681, the market fell off to take out its session lows to reverse the intraday trend as more longs locked in profits and short sellers sat on the sidelines looking at the market drift lower.  With shorts out the market, this created a chase to the downside into 164650 to retest the pivot low of 1646 made last Thursday prior to Friday's move into 1665.75. A 40 point rejection off the top level of 1685 and a press to test the downside resistance range at 1656 to see if that old resistance acts as new support for a retest of the mid level at 1666-1670.  This has raised the stakes for bears as the range to defend has widened.  Failure to hold 1646 sees more shorts left on the sidelines and a wider range (40) to defend the high.  Market remains in its 5th wave that began on the breach of the old 1593 highs with a pivot low of 1530.75 occurring during the "4th" corrective wave.  As market moved past 1593, buy side chased and shorts squeezed from the 1593-1530 giving way into 1656.  Sell stops have built along this wave 1530-1685 below 1646, 1620, 1607, 1570.75, and ultimately the 1529.50 low from Cyprus.  Wave 5 ends on a breach of that pivot low that began the wave at 1530.75.  With that taking place, a confirmation will then be made that the move above 1593 was a failure and an "abc" corrective pattern can be seen should the market be able to bounce after breaking 1530 to retest the 1600 level and see if it can get back above. 

See: "SP500 Wave 5 How High Will It Go"