Last week we had fireworks again, with the first 3 days being very bearish, while Thu-Fri provided a vertical V-shape rebound, with up gaps on the cash sessions on both days.
There were quite a lot of great tells from the mcm tools, so let's dive right into the "lessons learned".
- IGSI unconfirmed low set-up
Unconfirmed lows on IGSI are very powerful set-ups and are normally good for a lot of points. A great example is the actual move off the Thursday morning low, which was unconfirmed on IGSI. However we actually had 2 unconfirmed lows set-ups, the first of which failed. Let's see the main differences between the two.
On Tuesday we had an unconfirmed low on IGSI, but the initial bounce off that low triggered bearish EE which held and pushed price lower. The unconfirmed low was held initially, but the bounce off there triggered again a bearish EE which also held. The next trip lower broke decisively the unconfirmed low and the market flushed.
On Thursday we again had an unconfirmed low on IGSI, but this time, buyers never hesitated and rocketed off there.
The main take-away is that the confirmation lvl for the upside set-up of the unconfirmed low on IGSI is the peak of the prior IGSI high before the unconfirmed low. If IGSI shows bearish EE vs that lvl, it is best to be cautious and raise stops on positions entered at the unconfirmed low.
2. FGSI up squeeze set-up
Normally when FGSI is at extreme optimism (red zone) it indicates a top and reversal is close. However the "up squeeze" set up happens when FGSI is in the red zone and starts pulling back, while price keeps hovering near the highs or even makes new highs. That indicates that market participants are increasingly pessimistic, but are unable to move prices lower. Ideally this sort of set up is completed by a breakout on Tick Tools (TT), like a breakout over a buyer exhaustion (BE) or an important level, like the maginot line (ML).
We had also 2 up squeeze set ups on FGSI last week, one failing and one playing out well.
The 1st one occured on Thursday. After the big bounce off the unconfirmed low on both FGSI and IGSI, FGSI reached extreme optimism (red zone). But price continued higher, as FGSI started to come lower from there. On TT we had broken out a BE just after the cash open and everything was looking good for the up squeeze set-up. TT even triggered a Seller exhaustion (SE) above the broken BE, but the big warning came immediately after that when a new BE was triggered. That turned out to mark the high for the day and the market retreated quite strongly from that level.
The 2nd one occured on Friday and this time there was no stopping the buying stampede. We had almost the exact set-up. FGSI moved to the red zone, then started pulling back, while price kept climbing. TT had broken a very strong 100% BE Xtick and held the back-test. Then came a SE above the broken BE Xtick (so far exactly like the set-up from Thursday), but this time no BE triggered and the coast was clear for buyers to continue higher. This is exactly what happened as price grinding higher for almost the entire session, with only the last 1h sesing a few whipsaws both down and up, and closed near the highs of the day.
The main take-aways is - the up squeeze on FGSI is a powerful set-up, but must be completed with signals from TT. If a BE hits that caps price and then a SE gets broken, those are strong signals the buyers are not in control any more. If TT signals that the up trend has little resistance, then the up grind can continue unabated for quite a bit. As can be seen, an additional confirmation on Friday was that price held the danny line all the way until the last 1h whipsaw. That is indicative of a strong up trend.
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.
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.
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.
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.
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.
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.
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.
ST trend: neutral
After the up squeeze on Friday, the market continued to put in unconfirmed highs on FGSI, which in the end led to a small correction. FGSI was showing that sellers are inefficient and did set up bullish excess energy (EE) vs lower levels. However, what is interesting is that FGSI is now showing that buyers are inefficient on bounces and the inefficiency is increasing. The last bounce set up bearish EE. So with both buyers and sellers being inefficient, that shows indecision. So the trend is now up for grabs, whichever side manages to break the EE first, will have the near term trend on their side.
ST trend: up
After the weakness into the close, mkt continued lower, but put in a very bullish situation at the o/n lows. Not only there was extreme pessimism on FGSI, but it was in the context of bullish excess energy (EE) vs the prior trip to extreme pessimism. Additionally it put in an unconfirmed low just after that. Not suprisingly that triggered a decent bounce. That did trigger bearish EE which initially held, but was afterwards bought to new highs and the bearish EE level was broken and turned into confirmed highs. That also has the potential to be very bullish. Sellers are also inefficient on this decline and a bullish EE is already set up vs the prior low. These are all bullish signs, so the ST trend is up. The only way bears would be able to reverse this into a more immediate correction would be to break that bullish EE level, however with the maginot line (ML) also being a few points above it, that looks unlikely.