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Gold Market Structure Projections Suggest Problems Ahead for Risk Assets

We posted a few weeks ago, market structure projection gold has reached its inflection point at [1] in the chart below. While a smart 3 to 4-week bounce which could be significant would be reasonable, important point to note, is that goals has reacted at its expected timing and if we get a strong rally. The goal chart below suggests that the reaction to the Fed policy adjustment or activity may not be nearly as rosy as the stock market would like it to be. This chart says danger ahead. Last goals. Investors think that they are out of the woodshed, it also appears that after this rally a new low in January for gold is a high probability. The most bullish scenario for gold would be if a low in January was a divergent low meaning that it has a higher low than the current low. This is not currently the preferred view, but it is a distinct possibility and if it were to occur with the market structure low implied for January it could suggest a very large gold rally.

Gold Market Structure Projectons

Gold Market Structure Projections

Now That Everyone Need Never Worry About Equity Market Risk – Is the Worry Over?

"Nothing shall interfer with risk markets" is now the popular determination...after the largest terrorist attack in years combined with horrendous economic data produced a large bounce - why worry? 

We tend to believe that this compunction is in for some more testing and that intervention will only go so far. VIX was in a position where, despite giving a valid signal, it is of a low-quality variety that would usually lead to a bounce but need a secondary signal for a larger and longer reaction. Having reach our 2010 to 2015 target the S&P was entitled for a bounce as  would be normal for retests of previous upward impulses on the daily charts. Our systems that took longs into this area are not virtually flat and will close these trades at any time. This also would fit the MSP timing.

The NYSE is in a remarkable bearish Head and Shoulders pattern that virtually no one seems to be focusing on. and moreover, the shorter-term pattern shown below is not too bull friendly either. The fact is, that we broke out into a thin zone with what would be called a full test. The normal and highest probability reaction for these types of event is a drop through the thin zone to the next supports as can be seen on previous events on the chart.

S&P500 Daily and Weekly Market Structure Projection

S&P500 Daily and Weekly Market Structure Projection

S&P500 and VIX Buy Signals

S&P500 and VIX Buy Signals

NYSE Levels Chart

NYSE Levels Chart

Stair Step Down Likely Begun for DAX into March 2016

Not only has risk shifted for the US equity markets, but European equity markets like the DAX and the EUROSTOXX50 have also begun stairstep down patterns. This implies rallies will be to lower highs drops will be to lower lows within an overall larger downtrend. From the appearance of things the situation should remain intact until March 2016. With the largest declines for the DAX coming in December. This analyst also expects a shockingly difficult December for the US stock markets is the Santa Claus effect is likely to be muted at the very least. The DAX market structure projections can be seen in this chart have been highly prescient, with general timing,  direction and weakness suggested into the end of the month which could become severe for the index. The possibility includes a lower low below August lows being a not insignificant probability. This event would imply a breach of August lows for other European markets, and quite possibly US markets.

As mentioned regarding the US markets, if treasuries begin a rally and exceed the August highs, then it would not be surprising to the US indexes below or at the August lows.

DAX Daily and Weekly Market Structure Projection

DAX Daily and Weekly Market Structure Projection

An Overview of the Markets and Projections

While many are likely to have been turning their bearishness into bullishness over the last week or so, having confused bearishness and the potential for new lows in September where bullishness was warranted into November with of upward probability. Currently, we are sitting in a key timing window for the S&P500 as we have discussed recently and have high probabilities of a turn either being in as of the beginning of this timing window last week or possibly into this week (ideally early).

While we did expect back and fill earlier in the month of October from the 2140 area, the primary scenario expected strength into November. However, running corrections reduced the pullbacks that should have appeared early in the month to trivial events. Even though a correction/consolidation was registered on the charts, this correction period was classified as a running correction. A running correction is a pattern in which the impetus for market participants to interact with the market is so strong in one particular direction that what normally would be a price retracement pattern or consolidation becomes a consolidation with direction. Meaning, that instead of a consolidation pulling back it actually grinds upwards during the correction process when occurring in an upward market and then breaks out. These patterns are prone to very strong reactions in that many people attempt to short what looks like a breakdown that actually never occurs and immediately runs against them - thus trapping as many participants as possible. These patterns are powerful in up markets and in down markets and are occurring increasingly as greater intervention in markets occurs.

Given this, market structure projection indicated a pronounced period of upward bias throughout October and left translated MSP precisely indicated the previous turns. The market has been leading (which we refer to as left translation) the normal market structure projections. We represent this in the charts with the cyan plot showing the left translated projection which has coincided very well with activity in the markets over the last 2 1/2 to 3 months.

Moreover, market internals and other symptoms of ill health abound, regardless of hyperbole from analysts or the Fed - it appears things are not healthy. Preceding the August crash, the equal weighted S&P 500 index underperformed dramatically. This index has underperformed even more dramatically during this bounce. It is this analyst's interpretation that this is a sign of significant stress. The stress will need to be resolved, and if history is a guide, the resolution is likely to be stronger and quite likely more persistent than our August episode.

Note, the market structure projection for commodities and bond markets. These projections suggest equally interesting timing and also contradict the prevailing perception in the markets as to what are reasonable expectations near-term and even medium-term. It appears that there is a quite marked probability of a buy-the-news reaction in bonds combined with the sell-the-news reaction in equities and latent dollars strength to keep pressure overall on the risks markets. It also appears that the dollar may have a significant inflection point in December to early January, which may, in fact, be a larger sell-the-news type event.

Accumulation index components

Accumulation index components

S&P 500 Index - equal weight vs. capitalization weight performance

S&P 500 Index - equal weight vs. capitalization weight performance

S&P 500 market structure projection

S&P 500 market structure projection

US treasury market structure projection

US treasury market structure projection

Gold market structure projection

Gold market structure projection

US dollar market structure projection

US dollar market structure projection

Oil market structure projection

Oil market structure projection

While Everyone Is Looking up – It Appears to Be Time to Look down for Quite Some Time to Come

At this time, despite just about every analyst, save a few, that we are aware of looking for new highs, we wish to point out that the risks appear to be to the downside well into next year. Just as the rally from August fooled the likes of high-profile analysts such as Tom DeMark, who expected the market to drift down through September and into October, and the abundance of wavers looking for fifth wave lows below 1825 - we do not expect that the market will want to be any more obvious for anyone than it was in August. However, as can be seen in the left translated market structure projection shown in blue on the chart below, while the persistence and lack of pullback of this move may have been a bit of a surprise for this analyst - the move itself, followed our general expectations nearly perfectly.

The implications of these projections are significant in that the next week or two are large potential inflection points for many markets. These inflection points are likely to carry weight for many months to come - not to mention disappointing the abundance of analysts and market participants looking skywards. Below is an updated market structure projection chart and we are now knee-deep in the turn window inflection point.

Also, please note that the BEAR IMPULSES PREVIOUSLY DISCUSSED ON THESE PAGES ARE STILL WORKING AND HAVE BEEN SO FAR ONLY BEEN RETESTED. The implication is that until these bear impulses fail, the larger direction and risk for the markets is down. We expected a retest in the 2060's  vicintity/area was a probability given the norms for impulse structures to retest their breakdown points. However, on the weekly charts we have overshot somewhat the impulse breakdowns by a little bit - although it has barely visible on our weekly charts (charts in a post we will publish tomorrow)...the impulse retest has indeed provided resistance to the ES futures and is a very good point for the market to do some soul search and to rediscover and begine the next phase of its larger bearish if it wishes.

We sent out an alert last night to members informing them and reminding them of the gravity and potential of this inflection point and also of the shorts that systems were triggering the close yesterday.

Daily and Weekly Market Structure Projections

Daily and Weekly Market Structure Projections

MCM Newsletter – Outlook for Week 2-6 Nov

For the benefit of the general public, considering that we are approaching an important inflection zone, we will keep this post open, however the future weekly newsletters will be limited to members.

Executive Summary:
- Main Trend (weekly): down
- Intermediate Trend (daily): up
- Short-Term Trend (60min&135min): up
- MSP for the week: up

Details:
No significant change in the weekly cycle compared to the previous week. The impulse down which started in week 35 is still valid - the price sliced through the support level which triggered at 2061.75 ES and 17353 YM (point 1 on the chart), confirmed afterwards by the MCM MA (which also came down through the mentioned level). That means that the main trend is still down. Compared to last week, the price advanced a bit more above the break-down levels (point 2 on chart), however not significantly enough and the current movement would still qualify as a back-test of the down impulses. The past week did little in terms of confirmation, so we are looking to next 1 week, possibly also the week after, to either confirm the main trend down or a reversal.

Weekly Cycles

If the weekly cycles did little in terms of confirmation, the past week brought a significant development on the daily cycles. Namely the MCM MA confirmed (point 2 on the chart) the price break-out (point 1 on the chart) above the resistances triggered at 2015 ES and 17100 YM. That means that the cycle impulse up on the daily is confirmed. The impulse is still at an early stage, and it can be reversed, especially considering the weekly development. Which is why also on the daily what happens next week appears to be of critical importance for the intermediate term direction.

daily_1.11.

Daily Cycles

The 60 and 135min cycles added even more nests to their upward impulses, by breaking above the END (or 2nd END) of their previous up impulses (point 1 on the chart). Currently the 60min has put in a capitulation bar (yellow bar on the chart) with a support level right at the lower end of the bar at 2069.5 (point 2 on the chart). Interesting is that 135min has resistance turned support very close, at 2066.75 (point 3 on the chart) and if we bounce higher from here, this would qualify as another back-test of the up impulse generated there. So very short term a bounce is the most likely option shown by the 60 and 135min cycles. If the bounce does not materialize and we break below the indicated levels, that would be important since it would reverse the impulse up on 135min and generate an impulse down on 60min (after MCM MA confirms).

60&135_1.11.

60&135min Cycles

The MSP for next week points higher with a significant inflection point coming up if it has not already occured. After the market peaks there is MSP bias for weakness over the next 3 to 4 months. When pointing out inflection points in the long term MSP it is important to mention that + - 3-4 trading days would be considered close enough. Friday is shown on the MSP as the peak, so we can conclude that the likely top is sometime in the 2nd half on next week or, if it's later, in the 1st half of the week after.

Recently the markets have been leading/left translating their peaks and the market IS presently in the window for a turn...it is not the objective of MSP to pick the exact hour and day of an inflection point but rather to point out a region of probability - be alert to any clues that a turn is occuring.

 

1.11.ES_MSP2

Market Structure Projection

S&P and DOW Currently Working Bear Impulses are being retests.

Bear Impulse Retests Setting Up a Precarious Position for Market Bulls

This bounce has been a torture for bears and fur bulls alike. If bears think this has been frustrating, it could be promising to be quite frustrating indeed for the bulls. The upward retest of the broken impulse cycle suggests significant weakness lies ahead - weakness that will take out the August lows. Below, is a chart showing the daily working bear impulses. However, the weekly impulses are even more powerful and are in the very early stages. Therefore, significant leave lower prices below the August lows would be implied by those structures.

We are entering the statistically most bearish probability area for flows during this trading month between the 13th and 16th trading days of this month usually triggers outflow. Therefore, it is highly likely the reaction will be felt soon. This reaction can be large or it can be moderate, however, given the scale of this market, a downward reaction that would just be called consolidated could be plausible and in fairly short order to the mid-to-low 1900s and still be considered consolidative. However, keep in mind weekly impulses are rare, they are also potent and imply a pronounced period of selling - which most likely travels well into next year. 

S&P and DOW Currently Working Bear Impulses are being retests.

S&P and DOW Currently Working Bear Impulses are being retests.

 

Update on SPX Progress and Levels

As discussed yesterday, the primary degree support was critical. Breach of the support immediately sent the market through blank space to the next viable support which was intermediate degree (cyan) and around the 1983 area. Overnight markets are bouncing, apparently, based on more central-bank hyperbole. Short-term market structure projection suggests highs potentially around 5 AM to 5:30 AM. If ES Futures continue to make highs into the cash session, it suggests that something else could be happening, than the highest probability scenario as described below. It is key that markets remain below the thin zone above [2] on the levels chart shown below. Above this level could send the markets to retest the thin zone above 2009 or exceed the recent highs. Remaining below this area [2], which would normally be the highest probability, should send the market through yesterday's thin zone and down to the next thin zone at intermediate and primary degree support as shown at [3] - which is in the 1970s.

Several systems closed out shorts yesterday, while others are still holding short positions after booking some profits and would likely look to close positions in or below the 1970s. Market structure projection implies weakness is favored throughout this week, so it would be significant if strength showed up early. However, daily and weekly market structure projection aims to be an estimation of direction and timing plus or minus a few days so there is wriggle room.

SPX Levels

SPX Levels

 

Finishing with a Flourish? Projections Suggest Weakness Ahead

We are approaching key areas as shown on the Levels charts. 1990 to 2010 is a significant area on the SPX cash index. It would be reasonable to expect a reaction from this area. Additionally, market structure projection suggests early strength is likely to be dissipated into the afternoon. Moreover, Wednesday and Thursdays directional bias is significantly weaker. On top of market structure projection suggesting weakness ahead, which could be pronounced - we have the moon cycles – which are approaching the last moon and a new moon series. A weak reaction to the last moon could intensify the reaction to the new moon. Below is a chart of market structure projection for the intraday, which suggests timing around 10:30 AM and 2 PM. Either area is a valid place for the market to turn from upwards to downloads, 10:30 AM is the higher probability. However, to put things succinctly, the general expectation is latent morning strength leads to afternoon weakness.

Other data to note, is that the bias for strength this month ends on the fourth trading day of the month - this is where he currently sits. The implication is not that the market needs to fall apart after that, but rather that upward potential wanes. In this case, given the size of the retest of the currently working bear impulses a pronounced reaction would not be surprising. We want to reiterate again, that this rally does not fit into the structure of a bull market presently due to the working downward impulses on the daily and weekly charts and also the bias of the systems towards "bear market" predisposition.

Oct 6th, 2015 Intraday Market Structure Projections

Oct 6th, 2015 Intraday Market Structure Projections

SPX Cash Levels Chart

SPX Cash Levels Chart

As Expected, Bear Impulses Continue Last Week’s Retest Before Next Drop

As, posted last week in this post: Bear Impulses Retesting Before Next Drop, and this chart, significant retesting of a the currently in-progress downward BEAR IMPULSES should be expected. We indicated that testing in the 1990 area would be normal/ideal - and preferred between 1950 and 1990. Though it is totally normal for impulses to retest the breakdown point directly, in this case, that is NOT the highest probability outcome and would expect a retest that looks similar to the retest of the upward impulse shown on the chart below, but as stated in last week's post the option of a direct retest of the breakdown must be respected.

We are presently looking for BEARISH RETRACEMENT triggers (Magenta BR Labels) on the Daily and Weekly charts which will likely lead to pronounced weakness and subsequently the dissipation phase of the current Daily and Weekly Impulses.

We had a tremendous week last week in the lounge, with prescient and powerful signals triggering for upside into the NFP report and also, Market Structure Projection, eTickTools and Accumulation Indexes nailing the low on Friday morning in the 9:30 to 10 AM area and at that time suggesting a close near the high of the day as the most probable outcome.

Given the overall setup, IT MUST BE STATED AGAIN for the record, that impulses usually retest and they require more attention that we had received up till Friday last week. Friday was a solid step in the right direction. Interestingly, HAL and RVS systems began triggering initial SHORT risk entries which ideally get additional entries higher - these systems are very reliable and the fact that they prefer to sell this rally is significant.

Also, in last weeks, post, we specifically mentioned that into the first 3 or 4 trading days of this month bullish potentials are probabilistic. This remains the case, however, starting on Tuesday's AM cash market open, forces turn much weaker with Wednesday being particularly so.

Additionally, IT NEEDS TO BE RESTATED, the markets are in BEAR IMPULSES which implies much further downward pressure to come and does not view this retest as bullish. Nor do RVS and HAL, which contend that the bias in the markets is now statistically a BEAR MARKET. According to very long-term Market Structure Projection overall, downward pressure (ofcourse, with strong rallies interspersed) are probable into March/April next year.

Weekly Impulse Retests

Weekly Impulse Retests

Daily Impulse Retests

Daily Impulse Retests

In closing, We REMIND ONCE AGAIN AS IN OUR LAST POST, that once the shorter-term charts start generating downward impulses, starting from the very short-term 1, 2, 5 and 15 minute charts, risks for downwards progress increases significantly and that type of activity, shorter-term impulse generating fractals across time frames will certainly be in place when we complete upward structures on the intermediate-term to longer-term cycle charts. This can happen, starting at any time. Complacency in this market is not a good option. While the markets can extend upwards, these are fickle upward impulses can truncate abruptly.