Happy Halloween weekend everyone. This weeks update is going to take a top down approach in an attempt to ground everything and get a good look at the forest and focus a little less on the individual trees that comprise it. On our run up from the 2009 lows you can see that we've broken from the sustained uptrend at magenta which gave us our first substantial correction since the 2011 lows. The vast majority of analysts are quick to declare a new trend is under way after a rally or decline begins simply as a function of near term price action. This is a mistake. Large trend moves take time to consolidate as expectations change among investors. These periods last just as long as the trend periods if not longer. At present, we are about half way through such a period as we traverse across the blue channel from the upper bound to the lower. Now while the 400 point range from 2200 to 1800 seems massive on an intraday basis, it is relatively minor in the grand scheme of things. The cyan cross sectional channel is important as we cut across the larger blue channel because it defines price zones. Maintaining trade above the upper level lets you know that buyers conviction in future prospects of higher prices is strong. A failure of the upper bound of this channel is a hint that conviction is likely in the process of waning and a larger move back through the previous consolidation zone is likely underway. Since price has traversed this cyan channel area multiple times in the past it acts as a vacuum because all the levels but the most recent have been broken through and resistance to price change is weak. With that being said, it is a reasonable assumption that any sustained trade below the upper bound has a high probability of price finding the lower bound in a relatively short period of time before making its next trending longer term decision.
Taking a look at the closer term picture via the cycles, we can see that the market has not decided yet which way it wants to go. The weekly cycles show supports triggered, which have a bounce as normal expectation, while the daily cycles show broken support on ES and a fresh resistance on YM, which point down. The triggered levels on both time frames are critical to watch therefore since whichever break first will likely indicate a bigger move.
The weekly show a change compared to the previous week. The supports which triggered on ES and YM were reset and are now triggered again. This is a very rare occurrence and it happens only when a level (support or resistance) is triggered and something changes at the end of that bar, before confirming, that makes it not confirm. This only appears when the charts are reloaded which is why it was not seen immediately. In any case, the currently triggered support levels do not change the picture. The only difference is that the support triggered by ES is higher and is a bullish retrace (BR), meaning the impulse up is still valid. Also, because it is close to the break-out level it has higher odds of holding, but the conclusion is the same: a bounce is the normal expectation.
As mentioned, the daily cycles are showing exactly the opposite. ES broke it’s support level and although it didn’t break down and the impulse down wasn’t confirmed, it is a sign of weakness. YM is in a confirmed impulse down and it triggered a 2nd bearish retrace (BR) resistance level which normally would need a 2nd END support lower.