mcm daily market update 24.Mar.21

ST trend: neutral

Yesterday we were noting that the ST trend was down, as buyers were showing large inefficiency on bounces and FGSI never touched the extreme pessimism (green) zone. That happened close to 6am and FGSI then had an unconfirmed low, which pointed to a potential ST bottom. From there the market ran back towards 3940, with FGSI getting close to extreme optimism, before failing and breaking down to new lows.

The o/n continued to be worrying for buyers, as the price action was more sideways, but FGSI had big spikes to the upside showing they are still very inefficient. However on the last dip, sellers were also inefficient and actually triggered a bullish EE vs the prior low, which held. That puts things in the neutral zone, as both sides are inefficient and trigger bullish and bearish EE on bounces/declines. Once one of those EEs gets broken, that will be a sign that one side is taking the lead.

ML is also a big line in the sand and if price holds above or below will also be important to see. Currently the buyers are attempting a breakout over ML, will be improtant to see if they can hold above.

mcm daily market update 15.Mar.21

ST trend: up (with potential pullback risk)

On Friday we were noting that the trend was down with a potential bottoming attempt and indeed the market found its footing in the morning and then grinded up throughout the day. It continued higher on Sunday, but then retreated after touching the area close to the ATH.

This morning, price touched again the Maginot Line (ML) on the pullback and we had an unconfirmed low on FGSI, from where the market bounced hard and is now close to the ATHs again. That makes the ST trend up, however FGSI is at extreme optimism, so its behavior needs to be monitored to see if we get further up squeeze or a pullback to allow it to "cool off".

Lessons Learned part 2

Last week we had one of my favorite low risk set-ups, namely the Maginot Line (ML) "return to mean" trade. Actually it is a return to ML trade, but it works like a return to mean. This set-up basically states that whenever price gets too far (meaning more than 30-40 points) from ML, either on the upside or the downside, it is likely that it will go back to touch ML in the near future (1-2 trading days, but usually it's in the very next one). Because of the 1 and 2.5min cycles, this set-up can be entered into very close to the actual peak and can be turned into a stress-free trade very quickly. Also worth mentioning is that more often than not, ML will overshoot in the other side once price comes to it, so some runners can be left for that instance.

But let's see the real example from last week, which was text-book.

First off, Tick Tools (TT). As can be seen on the chart, we had a breakout above a buyer exhaustion right off the cash session open and after that bulls were fully in control until they reached the 3945-3950 area. Up there, they were already close to 40 points above ML (which is trending up when price is moving up, so that's something to consider when putting profit targets). The turn was anticipated by the "rounded top" pattern, which is price action stopping after a steep ramp and unable to breakout of a certain level, despite several tries. But it was the break of the 1st seller exhaustion (SE) and then this lvl turning into resistance that was the clear signal that buyers were losing control.

1 and 2.5min cycles were amazing at pin-pointing the turn and giving several entry possibilities, as they were unwinding the up impulses. 1min being the fastest, unwinds first and had a total of 4 END resistances painting, while 2.5min only had 2. Additionally, both had their cycle strength tool (white line at bottom of the chart) turn lower from max value. That is a great tool at pointing the turn after a huge run (both up or down) and you can see it went down pretty early once the up move lost momentum, giving plenty of warning and preparation time for setting up the short entries. A 3rd clue about the turn was the cycle oscillator tool (green line between the price chart and the cycle strength tool) which had a big divergence at the nominal high. It peaked at very high value (where the line actually became blue/cyan), and then come back down, even if price made new highs after that. The cycle oscillator tool never confirmed those highs.

When this type of set up presents itself, the best way to play it is to start shorting the END resistances on 1min (if more aggressive) or on 2.5min (if more conservative), AFTER the cycle strength tool moves down. As can be seen, 1min provided 3 entries (had 4 ENDs unwinds, but the 1st one was before the cycle strength tool moved), while 2.5min provided 2 entries.

FGSI and IGSI completed the picture, showing this short was a low risk trade. Both were at extreme optimism (red zone) and FGSI was putting in strongly unconfirmed highs. Because of this, the likelyhood that the market could have continued higher directly, without a pullback was low odds.

So in conclusion, 1 and 2.5min show that the trend is waning when their cycle strength tool goes lower. Starting to look for short entried on the unwinds of the up impulse (END resistances) on both, is a good strategy. Considering FGSI and IGSI in the red, the odds were high that a pullback was needed before market could continue higher. The profit target can be put close to ML (5 points above ML for example for a portion of it, ML for the majority and a few runners left for ML overshoot).

What happened next we all know, of course. Price came down to ML and even overshot it by about 10 points. Text-book playout for a nice low risk entry.

mcm daily market update 12.Mar.21

ST trend: down (with potential bottom attempt)

Yesterday we were noting that the trend was up as sellers were very inefficient on bounces. That played out nicely until SPX cash hit new ATHs. After that we noted live in the chat room that a low risk set-up for a short was arising. Price was significantly above the ML and 1 and 2.5min cycles were unwinding their up impulses. Whenever that happens and price gets too distant from ML, a sort of "return to mean" is likely in the next 1-2 sessions and price tends to return to "kiss" ML again.

The short set-up played out picture-perfect and price didn't only come back to touch ML, but overshot it on the downside. FGSI was giving signs that sellers were gaining efficiency, while buyers were inefficient on the bounces. This is a dangerous situation for longs, because losing ML is a sign the trend is now down. We do have bullish EE going further back, but sellers are close to breaking the first level. If that happens, then this could retrace deeper.

Lessons Learned Part1

This will be the 1st article of the "Lessons Learned" series. The aim is to discuss the most important set-ups on the mcm tools from the previous week and how they should be approached when they show up again.

First up is Tick Tools, which was amazing on Friday. It nailed the top off the cash open with a big Buyer Exhaustion (BE) Xtick from which the market sold off strongly. And also the low with a strong Seller Exhaustion (SE) Xtick that was overshot and then won back. If shorting the opening BE Xtick was a classic (and easy) play, playing the bounce once such a strong down trend is established (4 SEs broken, one being an Xtick) can be more stressful, however it doesn't need to be. The 1st thing to watch for, when looking for an attempted bottom, is price to break above momentum line (momo) and then for it to change colour to green. The 2nd thing is for the last broken SE level to be won back. Then the attention should be directed to the other important lines - danny, 400bar MA and finally ML.

Friday provides a great example of this set-up, as we had all confirmations one after the other.

As can be seen in the chart, the exact low was on a seller capitulation bar (the 3rd one in the same area). After that, price broke above momo and it turned green. After a few whipsaws just below the SE Xtick level and danny, price broke above both and the next big tell that an important low was in the making was price back-testing danny, which held as support AND turned green. Then followed the breakout above the 400bar MA and ML and then ML was back-tested, it held as support, and then ML turned green. All those signs were just one confirmation after another that the odds were shifting in favor of the buyers. The most bullish scenario played out once the reaction off the 70% BE was held by ML as support, which triggered a breakout. The big 94% BE Xtick might have marked the top, but getting a SE immediately after that at such a high level was a clear sign sellers were caught wrong-footed and were gonna get squeezed as long as the SE lvl held (which it did).

Next up is FGSI. The obvious signals were - extreme optimism (red zone) off the high from the cash open (which added weight to the BE Xtick signal from TT) and extreme pessimism (green zone) at LOD (which was also a sign to look for an attempted bottom). However, it's important to also discuss what happened next. It got to the red zone again pretty quickly on the run up from LOD and then started to move down to sideways, even if price kept moving higher. That is a set-up which indicates a very likely squeeze up, as market participants try to sell (increase in pesimmism), but are totally unable to move price and are getting run over.

mcm daily market update 5.Mar.21

ST trend: neutral (with bearish risk)

It seems the market stopped tipping its hand in the o/n session and keeps things in suspense until the cash market open. For several days we were noting that the trend was neutral as both sides were showing inefficiency via FGSI in the o/n session. Yesterday the buyers staged an attack over ML to get us back to an uptrend, but failed just above as the markets were disappointed by Powel's remarks. Funny how that works. So just to mention this again: ML is a KEY level for the overall trend. If price is above, we have a bullish bias, while if price is below - bearish.

In the o/n, both buyers and sellers were inefficient, as the market still tries to digest the mini-crash off Powel's statements. We have bearish EE above which held price action and pushed it lower and now bullish EE set up with FGSI bouncing from extreme pessimism. Those levels remain important and a breach would mean one side is getting the upper hand. Buyers want to hold the bullish EE and ideally to break back above ML. That would help them and could trigger a "relief rally". Sellers want to make a stand at (or below) ML and try to attack yesterday's LOD. Breaking the bullish EE level would help them significantly.

mcm daily market update 26.Feb.21

ST trend: up (attempted bottom)

Yesterday we noted that the trend was up, with whipsaw risks, as FGSI showed that also buyers were inefficient. The whipsaw risk turned into full on bear, once buyers continued to be inefficient on all bounces and the Maginot Line (ML) was lost. Just a reminder: the ST trend can change quickly if FGSI and the TT signals (ML is THE line in the sand for up/down trend) change character.

The o/n showed that buyers were up against the ropes several times, as the selling pressure continued and made the first bounce off yesterday's lows fail. However buyers made a big comeback and now we have a serious bottoming attempt. The last low was unconfirmed on FGSI and bulls bounced hard off of it AND broke the 1st bearish EE level. That is a big warning for sellers as it is exactly what should happen when the trend changes. However, buyers still need to win back the ML.

With both FGSI and IGSI showing unconfirmed lows at the o/n lows, the buyers have a great chance at turning this back up. But ML needs to give way, as long as price is below, the buyers are not out of the woods.

mcm daily market update 16.Feb.21

Summary: all 3 GSIs had unconfirmed highs at Monday's high, which means we are at an important inflection point. Sellers continue to be inefficient, however if FGSI breaks below a bullish EE level that would be a big warning that we might get a bigger correction. If the bullish EE level is defended, then another squeeze into the highs is possible. TT signals (danny, momentum, 400bar MA and ML) will be helpful in identifying early which scenario will play out. Breaking below ML would be a big statement from sellers (which would coincide with breaking the bullish EE too).

ST trend: up, with reversal risk

The late Friday melt-up into the long w/e produced extreme optimism on FGSI and then a series of unconfirmed highs. However Sunday and Monday saw price action continuing to grind up, while FGSI showed that sellers were extremely inefficient on all pullbacks which led to more and more highs. We currently have 2 unconfirmed highs on FGSI, from where the market pulled back, but again sellers were very inefficient and generated bullish excess energy (EE) vs the prior trip here (close to extreme pessimism). That is a 1st important level, if sellers are going to take initiative they would need to break below. If that happens, it would be a sign that at least ST, the character of the market is changing. Buyers are favorites now, so they simply need to defend that level and if so, then another trip to the highs is very likely.

IT trend: up, with reversal risk

We had some interesting developments also on the longer term GSIs, so we will cover them today as well. IGSI moved similarly to FGSI and made a big confirmed high on the open on Sunday, but then pulled back strongly, while price continued to grind higher. Now it dropped to below mid value after it put in an unconfirmed high at Monday's high. That sets up class B bullish EE already and means another squeeze up is possible. However, if FGSI breaks the bullish EE level, then we need to start watching the bullish EE levels on IGSI as breaking those would be more serious.

MGSI peaked and made a confirmed high at extreme optimism levels, which is again a warning this rally is getting very extended. It also started to pullback from there, while price continued highs, which makes Monday's high unconfirmed also on MGSI. A bigger pullback from MGSI extreme optimism is likely, the only question is if we will get one immediately or get another squeeze higher first into a clearer unconfirmed high.

mcm daily market update 10.Feb.21

ST trend: up with reversal risk

Last 2 days we had an apparent neutral trend in the o/n, with both buyers and sellers showing inefficiency in terms of ability to move price. And in both days it was the buyers that took the lead (back). Today, the trend is up, with sellers being inefficient, however we did have an unconfirmed high at the o/n HOD which could mark a ST reversal. The key word is "could" as for that to happen, the sellers would need to show up and push this lower. If buyers break that level and turn it into a confirmed high, then the up trend will resume.

mcm daily market update 09.Feb.21

ST trend: neutral

Yesterday we also noted that the trend was neutral, because after a prolonged up trend, FGSI was showing that both buyers and sellers were inefficient. We had bullish excess energy (EE) triggering on declines and and bearish EE triggering on bounces. However it was the buyers who took the lead again by breaking the bearish EE level. They also defended the 3886 ES level, which was the breakout of Buyer Exhaustion (BE) Xtick and the Maginot Line (ML) level.

Today FGSI is showing almost the same set-up like yesterday. Sellers are very inefficient, triggering bullish EE on each decline. However also buyers are showing inefficiency on bounces. So the 1st signs of one side taking the lead would be when they manage to break through an oppossing EE and make confirmed lows/highs.