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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

A Look At October So Far

Daily and weekly market structure projections have provided a decent insight into the markets over the last few weeks. In the chart below, we have shifted market structure projection earlier by a few days. This is tracked well. However, we may be in a larger countertrend pattern such as a rising wedge which would coordinate well with the concept of termination of the pattern towards the end of October or early November. Within this structure is an abundance of skew towards day to day downward price movement. As can be seen in the highlighted box and also the abundance of down projections on the daily MSP. The interesting thing about the daily MSP is additionally that it shows the potential for large spikes upwards within this skew of downwards movement. We have suggested consistently over the last weeks that upward movement may be quick and outsized due to events or Federal Reserve central bank announcements interspersed within a general downward bias. The result of such action can still mean that the market make some forward progress but may be very frustrating to bullish traders.

Daily and Weekly Market Structure Projection

Daily and Weekly Market Structure Projection

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

 

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

Centrally Planned Unintended Consequences – Oil – Now Nearing Inflection

In a chaos created by abcent minded centrally planning there is OIL. It appears that oil is nearing some inflection point and is another market to add to the early AM post.

Crude Oil Daily and Weekly Market Structure Projection

Crude Oil Daily and Weekly Market Structure Projection

Daily & Weekly Projections as of July 14, 2015

Probabilities, as can be seen below, in addition to the intraday MSP posted earlier, are decidedly downward biased. If this is the case, risk should be turning into an "off" broader phase than market participants have been used to. A sharp reaction in September would be likely with what looks like something more dramatic as far as downside in October (not shown).

As a note, Tuesday is a negative momentum day today - and would generally project to be the most negative momentum close to close day of this week.

July 15th, 2015 Daily & Weekly Market Structure Projections Update

July 15th, 2015 Daily & Weekly Market Structure Projections Update

Daily & Weekly Market Structure Projection Update Probabilities: DOWN

Below are updated daily and weekly market structure projections with extensive notes. There was an mcm Hindenburg Omen on Thursday last week in addition to highly weak performing bias for Friday and Monday. Comments regarding this potential were made on these pages though we were hoping to see market hold up into Friday or Monday. Using our tool set our adaptation for the market true directional probabilities were reassessed each day at around 4 to 5 AM and adjusted correctly for each day. Intraday, market structure has been behaving MUCH more reflective of a bear market tendency which is towards eccentric and unpredictable behavior during the cash session.

One comment regarding the potential for positive biases as NOT reflected as high for the near-term. There are lots of Elliott wave labels possible to indicate this or that upward structure. We find EW most helpful but within what fits in the probability skew of projections NOT in what looks pretty or entertaining. Though all market potentials should NEVER be dismissed, it is most common for a change in direction to drag along the previous mentality and preconceptions even for the best analysts. This is one reason that using probabilities reduces emotions. When the markets do something, not within the probability skew - the edge is compromised, and the next fractal for probability needs to be assessed as we have been doing on these pages. This process creates much less wasted energy or effort. Therefore, consider keeping analysis consistent and simplistic at market turning points where emotions, mental, macro analysis can lead to confusion and drag past behavioral expectations forward.

If the weekly market structure projections are correct, then we should start to see markets take on more traditional behavior during the cash session. Counter-intuitively is "up biased" for most of the cash session into 12 or 2:00 pm with large down moves overnight into the next cash session trapping bearish traders in the live session.

One note regarding what has the potential to become a larger change in character for the markets over the next weeks and months. This has been mentioned previously, but we will reiterate. There is a very high proportion of upwards price bias in strongly down trending markets. Most of the moves happen before the cash session and trap traders for 5 hours or so before relenting back towards downward potential into the close and in the single digit hours overnight.

June 16th, 2015 Daily & Weekly Market Structure Projections

June 16th, 2015 Daily & Weekly Market Structure Projections

For reference, we are including the last post for reference. As can be seen nothing changed in the chart and there was quite a lot of valuable data represented on it.

June 10th, 2015 Daily & Weekly Market Structure Projections (Previous Post Reference)