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MCM Newsletter – Outlook for first Week of November

The market moved mostly sideways last week, with a slight upward tilt. But even so, it managed to make a new ATH on Wednesday and finished the week very close to that. This is consistent with out assumption that these are sequences of 4-5 waves, from an EWT perspective, which would mean that it is a terminal pattern. No sign of a top just yet, but any impulsive decline should be viewed as a possible start of a bigger correction, so we reiterate our recommendation that bulls should avoid becoming complacent here.
No change in the weekly cycles. Up impulses continue to extend with no unwind in sight.

Weekly Cycles

Same story on the daily cycles. Up impulses are ongoing and no unwinds just yet, however we do have directionality coming close to the minimum level. That is not bullish, unless the price action manages to push this back up.

Daily Cycles

The 288 and 480min cycles    
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MCM Newsletter – Outlook for Week 14 – 18 Nov

What a week! It’s hard to keep the exclamations away in a week that saw an intra-day drop of more than ES 100 points to reach a limit down suspension and then a full reversal to come back, open the cash session only slightly in the red and keep rallying to close the day green. It was a Brexit type event, except it was faster. After Brexit we had a big drop, a dead-cat bounce and then the next day the markets made a new low. Now we never got that. Market bottomed in the overnight and then never looked back. People who were short in cash instruments must’ve had a really bad day, seeing the market 100+ ES points down and then opening nearly flat. Which proves once again that a large part of the action has moved outside the regular trading hours. The mcm tools caught the bottom quite nicely, signaling the exact low with a sell X Xtick on v-tick tools and then despite what looked like (and was) a huge bounce, it never triggered a buy Xtreme until the RTH started.
But as always the big question is what now. The weekly cycles put in a very large candle, with a LRE (lower risk entry) for longs at the bottom of it. Both ES and YM spiked below support, but recovered it and we are now looking for resistances to trigger higher. Once that happens, that would be a strong sign that another correction is coming. ES is still in an up impulse which would likely be over once an END resistance triggers. So reaction in the opposite direction could be strong.

Weekly Cycles

Weekly Cycles

Zooming in to the daily cycles, these also spiked below supports and then recovered them strongly. So we have the the same expectation as for the weekly - watching for a resistance level to trigger. We did get some LRE (lower risk entries) for shorts, however the mcm-MA just recently changed bearish (red color) and we can see from such past events that in this case, the LREs are not very reliable. The directionality tool is moving upward and has been doing so for a while, actually since before the “Trump-win” Brexit like event. It will be important to see when it peaks and starts moving down.

Daily Cycles

Daily Cycles

The 288 and 480min cycles both    
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MCM Newsletter – Outlook for Week 21 – 25 Nov

Compared to the election week Brexit type event, last week saw things calming down. Although the intra-day swings in ES were 20+ points in the first 2 trading days and then 15 points in the last 3, that felt like no volatility at all. The market managed to continue to grind higher although the high from the election week was barely overtaken by 5 points.
Considering the absence of major swings, it is no wonder that the weekly cycles saw no major developments. The directionality tool finally bounced from it’s minimum level confirming the ongoing bounce. As previously stated, the cycles now need resistances to come up which would be a strong signal that the bounce is coming to an end. Of course, to anticipate where these might trigger we have to look at the shorter timeframe cycles.

Weekly Cycles

Weekly Cycles

Zooming in to the daily cycles, these also spiked below supports and then recovered them strongly. So we have the the same expectation as for the weekly - watching for a resistance level to trigger. We did get some LRE (lower risk entries) for shorts, however the mcm-MA just recently changed bearish (red color) and we can see from such past events that in this case, the LREs are not very reliable. The directionality tool is moving upward and has been doing so for a while, actually since before the “Trump-win” Brexit like event. It will be important to see when it peaks and starts moving down.

Daily Cycles

Daily Cycles

The 288 and 480min cycles show    
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Anatomy of a Tradable Bottom

The decline from Friday 9/9 was brutal. After months of range trading to get a 50+ points decline in a single day can be traumatizing, especially if caught wrong-footed playing the long side. In fact it can be so traumatizing that it is hard to even consider longs immediately after that. But the very next trading day, after continuing the decline for another 10-15 points (probably to shake out the last remaining longs and draw in some more shorts), the market proceeded to rally 50+ points from the ES low in the overnight. It is very hard to keep the objectivity when faced with this type of volatility, but one thing the mcm tools definitely have is the fact that they are objective. They are based on real data and when they trigger a signal, that signal is objective. And when signals align... Well, wonderful things tend to happen. The mcm tools signaled the 2100 ES overnight low from 9/12 as a VERY important level with significant support and, as a result, a high probability long.

And here is why.

First off the virtual tick tools signaled the 2100 level as very important. At point 1, around 3:30am it signaled a tiny capitulation bar (yellow bar on chart) and also a selling Xtreme (or sell X, which means there was an extreme selling effort in which all willing sellers have sold). At point 2, around 4:30am, it triggered another sell Xtreme with an Xtick (a sort of super sell Xtreme, to put it in simple terms), which came at the same level of 2100. At point 3, around 7:30am, the market tested once more the sell X and held. At point 4, around 8:30am, the tools signaled a buy X Xtick, with a capitulation bar (red bar), which were broken above. Ever since that break-out, which was held, the market rallied and never looked back.

V-tick tools

V-tick tools

Reinforcing the signal of the V-tick tools, were several cycles which were showing support at the exact same 2100 level.

First off the 1 and 2.5min cycles. For easier reference I kept the time points from the v-tick tools (1= 3:30am, 2=4:30am, 3=7:30am, 4=8:30am). 2.5min had support at points 1 and 2, at point 3 it was in a normal oscillation wave, while at point 4 it also broke out above resistance and started an impulsive wave up. 1min is too fast and the 1 and 2 time windows are not shown. But at point 3 we can see that it also had support, while at point 4 it also broke into an up impulse by breaking above resistance.

1&2.5min Cycles

1&2.5min Cycles

Continuing the story is the 5&15min cycle. At point 1, the 5min cycle had a 3rd END support. That means it was marking the complete unwind of a previous impulse down and likely to trigger a bigger reaction in the opposite direction. At point 2, it held the 2nd test of that level. At point 3 it had a new resistance, but at the same 2100 price level. At point 4 it also broke into an up impulse. The 15min cycles shows pretty much the same story. At point 2, it triggered an END support (marking the unwind of the previous down impulse), then at point 3 it held that level, while at point 4 it broke out into an up impulse as well.

5&15min Cycles

5&15min Cycles

Next are the RSI cycles. Same story again. 3rd END support at 2100 at point 1. New support which held at point 2 and 3. Break-out above resistance at point 4 and start of impulsive wave up. An additional signal was the fact that the CCI (the red line at the bottom of the chart) was diverging at points 1, 2 and 3. Market made a new low at point 1 and tested that level at points 2 and 3, but CCI was going up.

RSI Cycles

RSI Cycles

Following are the Tick Tools. These generate signals only during the day session, while V-tick generate also during the overnight. Right off the open, the tools generated a sell X with a 98% Xtick which was never contested and market proceeded to rally directly from there. No surprise, since 2110 was previous resistance broken above on several cycles and a buyX Xtick on v-tick tools. After rallying from 2110, the market met a buy X at 2125, but broke above and continued to move higher, with the bullishness confirmed.

Tick Tools

Tick Tools

Based on the confluence of signals, 2101 ES was called as a high probability trade in real time in the Expert Lounge here at mcm. The trade was never in danger of being stopped out and once the break-outs were confirmed on several cycles (first at 2104, then 2110, then 2114, then 2125), there was no real reason to exit before netting 30 to 50 points, depending on the exit strategy.

S&P500 Expert Lounge Update –September 12, 2016

Good morning everyone,

These are key timing for today:  9:30AMEST, 2:00PMEST

These are key MA levels:  5EMA 2158,  50DMA 2163, 100DMA 2121

These are key Fib Levels:  2127, 2139

These are key primary and intermediate levels:  2131(intermediate minor), 2126(primary major), 2115(intermediate major)

Here is today's market look at the S&P 500 for Monday, September 12, 2016:

The market continued its waterfall in the overnight session but with the substantial bounce this morning it looks to recoup a good deal of the earlier losses.  Cyan seems to be the odds on favorite at present with the early morning strength, but keep an eye on the gap and tick tools to see what makes sense at the open of regular trading hours and the coinciding timing window.  Price action will be the primary focus as there are no economic releases to speak of, but there are a few Fed heads to speak.

MSP

MSP

How price behaves around the primary major level will be important to note because it will give clues to what kind of price action we should expect going forward.  A solid rebound from that area will likely produce a more pronounced bounce, but an overshoot to the downside should be taken as a warning that areas below that level will want to be tested.

Primary and Intermediate Levels

Primary and Intermediate Levels

As noted on the historical extremes chart last week during banter in the expert lounge, there was a substantial void between newly formed extremes and the existing.  As soon as selling began, this gap turned into a massive vacuum and traversed the gap very quickly.  Now that we've reached clusters of historical extremes again it is most probable that price will become choppy again.  Keep a close eye on the tools and timing into market open to get an idea of what is in store for the session.  Good luck today!

Historical Extremes

Historical Extremes

RSI Cycle Chart with mcm-CCI Advanced

Full Dynamic Range RSI Cycles Explained

The Full Dynamic Range RSI Cycles are a proprietary product developed by MCM which measures the RSI without incorporating a time component. It is fully price dependent and it moves with 6 tick range bars, being possible that one bar is a 1min bar or a 10min bar or any time frame in between.
The RSI Cycles point out, first of all, the cycle movements. For the basic info on cycles, please read the following article: http://mcm-ct.com/blog/weekly-charts-explained/

Apart from following the Cycle movement, the RSI Cycles contain a few more interesting tools. Below is a zoomed-in chart of the RSI Cycles which points these out.
First, at the bottom of the chart there is the directionality tool (point 1). At point 2 you can see the arrows pointing at the overbought (dark red) and oversold ranges (light cyan). These are calculated levels at which the market participants would perceive the price as being too high or too low, meaning oversold or overbought condition, at any particular time. These work and move similarly to the Bollinger bands and when the price touches either, the bars will appear highlighted - oversold condition with cyan color (point 3) and overbought with red color (point 4). As it can be seen, an oversold or overbought bar does not mean that the market will stop and reverse immediately and the condition can persist for a while, however it is an indication that the market is perceived as being in an extreme situation and usually this is corrected, either through a reversal or a side-ways movement. As it can be seen in the example, the market moved from oversold to overbought very quickly and finally the overbought condition resolved lower.
At point 5 there is an example of how the different signals are reinforcing each other. The market was in an overbought condition immediately after breaking above the resistance (magenta line) which meant that the up impulse generated had low odds of turning into a true impulse. Additionally the directionality tool reversed from the highs and went at the lower line and stayed there. The impulse up was reversed quite quickly afterwards and the RSI Cycles oscillated for a while, until point 6 when it broke into a down impulse.
The cyan line which moves between the 2 ranges is the mcm-Moving Average (MA). An impulse is confirmed only after the mcm-MA moves above (or below) the break-out level - we can see it confirmed the up impulse at point 5 by breaking above resistance and also at point 6 by breaking below support.

RSI_Cycles_1 in post

RSI Cycles - zoom-in example

An important addition to the RSI Cycles has been done this week, through the introduction of the mcm-CCI line (at the bottom, below the directionality tool). That is a proprietary tool which shows the character of the market - bullish or bearish. It moves between +300 and -400, with 0 being the dividing line. When the mcm-CCI is below 0, the character of the market is bearish. When it is above 0 - it is bullish. Additionally the color of the line shows how strong that inclination is - the brighter the green the more bullish, the darker the red - more bearish. There are several ways in which the mcm-CCI can be used, apart from showing the character of the market in any given time. These are the following:

  1. When the mcm-CCI is testing 0 - that is a significant event and is usually followed by a strong reaction. For example if it comes from a negative value and breaks above 0, that is a warning that the tides are changing and more bullishness is coming.
  2. When the mcm-CCI is testing a round number (+100, +200, -100 etc). Failing at one of these numbers usually triggers a strong reaction, as is breaking one (not as significant as 0 though)
  3. When mcm-CCI is approaching an extreme level - either close to +300 or to -400. That is a sign that the market is at an extreme and a reversal is not far away. When the mcm-CCI is close to +300 and then heads lower, the confirmation that a reversal happened usually comes if it then breaks below +100, so one does not need to wait for 0 to break (usually that will happen as well, but breaking below +100 is confirmation).
  4. When the mcm-CCI is diverging from price. For example price is making lower lows, but mcm-CCI is making higher lows. That is a sign that a reversal is near. The bigger the divergence, the stronger the signal. A difference in mcm-CCI of more than 50 points would be considered a strong divergence.

Below, there is one example which illustrates how powerful this tool is, especially when viewed in the context of the other RSI tools.

In the chart below we can see that the market never changed its bearish character, not even after the big reversal from oversold (around 1925) to overbought (around 1945). At point 1, at the highs we can see that when the market was trying to break into the up impulse, the mcm-CCI was testing the 0 level. And it failed. That failure combined with the overbought condition of RSI Cycles bars immediately after the up impulse was attempted and the directionality tool reversing from top to bottom were very strong signals that the impulse up would fail. Which is exactly what happened at point 2, when the price went below the break-out level and a support level (cyan) was generated. After that the market oscillated for a while, but the weak character was shown not only by mcm-CCI, but also by the fact that the support levels were broken, while the resistance levels were respected. Finally at point 3, the market broke into a down impulse, confirmed by the mcm-CCI which went lower and the directionality tool. At point 4, a divergence between the mcm-CCI and the market price started. While the market made lower lows, the mcm-CCI made a low slightly below -300 and then started to move up, making higher lows. The fact that the down impulse is unwinding (had a bearish retrace - BR - and an END) at the same time, means that the trend is likely changing and a bounce is expected. The down impulse will likely need a 2nd or even a 3rd END to completely unwind, but a reversal is expected nonetheless.

RSI Cycle Chart with mcm-CCI Advanced

RSI Cycle Chart with mcm-CCI Advanced

OPEX Intraday MSP Projections

OPEX Inflection Point? Friday Intraday Projections

This week's options expiration activity matched 20-year expectations for market structure production. With strong rally shown in red starting at around 11 AM. The data shown below is specific to options expiration week behavior. So far, options expiration Friday is following the market structure projection normals, which are indicated by the red projection on the chart below. Normally, acceleration occurs in the 2 PM area specifically in the last hour and a half of options expiration Friday. In this case, the edge is for a down in reaction. However, take note that in strong bear market moves where options expiration has been proceeded by. A weakness the last hour and a half to two hours of the Friday expiration can be a relatively sharp upwards reaction. This is not expected today, as our desperate and panicked central bankers have done a fine job of messing up the best-planned option positions into this week.

As a note, yesterday was a very unusual day with the tools triggering the equivalent of the strongest buying efforts in the last 15 to 20 years. This registered with a 100% percentile X-Tick and a breakout over this emotional buying extreme for one of the strongest buying panics and buying capitulations that we have witnessed. This was truly extraordinary if not a bit shocking, especially given the limited amount of cash that flowed into the market yesterday. Generally, mcm expectations for this week were for a consolidation week from last week's highs followed by a further upward bias grind into early November. Yesterday's buying panic, however, especially when combined the pending low expected in the dollar, sets up the risk markets for some significant headwinds. Though edges into November in the equity markets are positive, probabilities favor day-to-day weakness with large spikes interspersed between – most likely triggered by hyperbole from our central planning contingent.

OPEX Intraday MSP Projections

OPEX Intraday MSP Projections

DAX – Tick Tools Show the Way in a near 500 Point Drop

Yesterday was a horrid day for DAX. It went up in the morning, when the futures opened and surpassed the 10.000 mark. Actual high was 10.019. And from there it went in a vicious decline to put in a daily low at 9.559. That’s 460 points in just one day!

Now anyone with access to the tools would have been forewarned to pay attention when it counted - at the 10.000 mark. As can be seen, 10.000 was highlighted with a buy X-treme and an X-tick to boot (on v-tick chart). When the market made the high above 10.000, a capitulation bar appeared. Now that’s a dangerous triple combo. And when the market reversed without the moving average getting a chance to get above that buy X, it was a clear sign that market was putting in an important pivot there.

Yet another sign to be cautious on the long side was that the market was still impulsing down on the 15-min and 60-min cycle - from the 10.100 area. And the 60min chart showed a bearish retracement signal at 10.019, which was the high of the day.

Just a regular day in the life of the dax tick tools...

vtick

V-tick chart

60min

60min chart

15min

15 Minute Cycle Chart

Major and minor updates to eTickTools

Lots of Stuff and Projection Update

This weekend we completed a major upgrade of charts and chart streaming for the mcm site. We added significant new enhancements to the eTickTools Project and we rolled out some new analyses - Historical eMotional Extremes.

From a housekeeping standpoint we will bullet-point the list.

  • Fixed Cycle Display and Markers on 5-Minute chart
  • Fixed Scaling issue on 1 and 2-minute charts
  • Addressed the printing of a double "potential stop-run" when triggering at the open for eTickTools
  • Added Percentile Ranking for each buy and sell-extreme for eTickTools - this is a big deal
  • Added a Ranking for the volume extreme taking place during a Buy or Sell extreme for eTickTools
  • Added auto updating Historical Extreme Charts for both the S&P500 and DOW
  • Added an alpha toolset for DAX that is just in testing phase
  • Added various other general clean-ups and labelling for tools and charts

The additions of rankings to all the eTickTools extremes is a significant enhancement and allows an unprecedented and high quality of gauge of the amount of effort the market is exerting at a specific capitulation point. The addition or a ranking of the amount of transaction at the point is also a significant enhancement. We encourage you to ask questions regarding any of the enhancements.

Major and minor updates to eTickTools

Major and minor updates to eTickTools

Regarding the markets, Daily/Weekly market structure projection has suggested that a consolidation after the projected bounce during the 1st week of September occurred. This is indeed appearing to be playing out. Markets are very bearish and people are very scared which could contribute to a pause in down movement and leads to strength into the week of the 21st. It needs to be made clear that these are contextual time ranges. If you have been reading these pages, you now doubt know that week 1 of September has been viewed referred to as potentially important point for the markets and as such could be a significant turn from an up move to down to new lows or in the more likely case, a down move that comes in the form of a period of consolidation for further highs into the week of the 21st. Additionally, note that MSP was correctly projecting weekly weakness into Thursday, August 20th. However, the turn from down to up did not come during Thursday's day session as projected but rather 9:30 AM on Monday - 1.5 sessions away. It seems to us that a projection made several months ago for a down week into Thursday the 20th being met to within 12.5 cash trading hours is about as accurate as one can reasonably expect during a market dislocation and certainly more accurate than most wave extrapolations and technical analysis would usually be able to be with any reliability. This condition resulted in needed in to rely on shorter term tools: eTickTools and Cycle Impulses for example. We did a webinar on these subject (http://mcm-ct.com/blog/webinar-follow-up-and-content/) and plan another because in the coming markets impulsing beyond emotional extremes and through cycle supports is a key tool that can objectively help to remain on the right side of a market even when the desire of a trader are to take the opposite direction - such as buying weakness when in fact an impulsive move downwards may just be beginning.

As such, eTickTools did an exemplary job of pointing out that the markets were likely under a severe capitulation by triggering multiple X-Tick downward selling impulses during that Thursday's session.  We made this post wich is a good reference: Market Consciousnesses – Running Through a Flux Capacitor. Indeed, the markets have been rushing back through time and retracing the gains of the last years. The danger continues to be high, though for the time being abated somewhat.

DAX Market Structure Projections

DAX Market Structure Projections

Below is an updated chart of the Longer-term MSP (Projections) for the S&P500. With the DAX suggesting a shallower pullback, edge is increased that probability of consolidative behavior for S&P500 is increased into strength into [5] on the chart below. This chart is suggesting a period of consolidation/weakness and then a push into the long referred to week of Sept 21st.

S&P500 Market Structure Projections

S&P500 Market Structure Projections

The Only Variables We Control: Risk Management Concepts

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