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Daily Cycle Chart

Look Out Below – Bear Cycle Impulses Mark Retests Complete

Last night, as posted in the "lounge", the market action was distinctly that which we have not seen since the 2007 and 2008 era. Yesterday, to the dismay of many to be sure, the Dow Jones Industrials Index, for no apparent reason, spiked 65 points in 30 seconds and reverted almost the same amount in another 30 seconds. Clearly this was a transaction under duress. Additionally, the impact of this could have transmitted emotional fear to the remaining equity markets, however, the behavior among all equity markets, was not constructive. Moreover, we have been sitting since Friday in pending cycle setups on the daily charts. Today, the dark magenta dot on the daily cycle chart for ES indicates that the cycle will now print. The price at which the cycle will print has not confirmed, therefore, it is shown dark. However, do not let the applications of the cycle be lost on you. This is a significant event and implies 70 to 100 points down in short order. If it is to be saved by another cyclic support cycle, then one will need to appear similar in fashion to the end cycle shown on the chart below. This does not need to occur - the market can make a much larger swing lower if it so decides. However, from a structural perspective, probabilities do favor that a near-term drop is likely be supported and probable to attempt a rally into early November. Any such rally can begin from significantly lower levels and result in a lower high is easily as it can result in a better retest of the cycle impulse levels in higher highs.

Note, also, that the weekly chart now has confirmed a more bearish potential setup than we were previously monitoring. Firstly, the weekly chart generated LRE triggers which are indicated by the red dots at the top of the last two weekly bars that completed. These indicate a propensity for downward reversion and a lower risk potential entry for such a position. There was a potential for the weekly chart to print a bearish retracement at the conclusion of the impulse we test. Given the nature of the impulses at this present time, it is unlikely to get such a BR (bearish retracement) to print on the charts until the market has put more effort in. We have rendered one example, though there are few other potentials, of how the dissipation phase of this impulse cycle may begin on the weekly chart.

Last point, notice that the complete cyclic cycle maneuver on the daily chart was matched by completed impulses upwards on the 135 minute chart which also has a fractal relationship to the 60 minute chart impulse cycles.

Daily Cycle Chart

Daily Cycle Chart

Weekly Cycle Chart

Weekly Cycle Chart

60 minute and 135 minute Cycle Charts

60 minute and 135 minute Cycle Charts

Weekly Cycle Charts Explained

First some basic information about interpreting the cycles:

  • cycle movements are like waves in nature. The stronger the wave, the more dissipation is needed to release the built-up energy
  • there are two types of waves: "Cyclic" and "Impulse"
  • a magenta line is indicating the peak of a cyclic wave, otherwise said, a resistance level
  • a cyan line is indicating the bottom of a cyclic wave, or a support level
  • a cyclic wave generates a bottom at a cyan line and correspondingly, a top at a magenta line
  • the green line (which turns red in downtrends) is the MCM Moving Average
  • a cycle impulse is confirmed once the price AND the MCM MA move either above a magenta line for an uptrend or below a cyan line in a downtrend.

The current trajectory of the weekly cycle chart on ES is a perfect example of how powerful a cycle impulse can be and what is the typical behavior.

Weekly charts

At point “A” the price moved above the resistance (magenta line) indicating a possible cycle impulse up in the making. At point “B” the MCM MA moved above the resistance (magenta line), confirming the cycle impulse. Once a cycle impulse is confirmed, it usually back-tests before really taking off. This happened almost perfectly at point C, when price came quite close to the magenta line and previous break-out. After that it was clear sailing, with no signals generated to indicate a turn or potential change of the main trend. At point “D” a Bullish Retrace (BR) was triggered, which normally needs an END to finish. The BR and subsequent END higher indicate that the cycle impulse might be coming to an end. Typically an END is enough on longer time frames, but it is common for also 2nd END and 3rd END to trigger. In our case the BR triggered at point “D” had an END, then another BR triggered and 2nd END and at point “E” we had the 3rd END. At that point, the cycle impulse was finished. The price went lower, a cyan support level was generated and broken, turning into a cycle impulse downward at point “F”.

The Dow cycle chart is a bit different, although it moves very much in sync with ES. Dow was already in a cycle impulse upward and had a 3rd END generate at point “G”, which coincides with the timing of point “A” on ES. The price broke above, the MCM MA also, and that became a nested impulse up. Dow had an earlier BR and 1st END (at point “H”). After that it also had a 2nd END and 3rd END, which signaled the end of the cycle impulse. After that it generated a cyan line and a corresponding magenta line, which signifies a regular “wave”. Another cyan line was generated, which was then broken by both price and MCM MA at point “I” signaling a cycle impulse downward.

Retest of Bear Impulses Is Now Sufficient to Be Counted Complete

A central banking mania continues to create dramatic stress for markets and market participants - if ever there is an example that "MORE IS NOT MORE", it is the behavior of the central banks – whose core focus seems to be innovating more and more efficient ways of turning more into less. In the vein, we believe "LESS IS MORE", so, it is important to remind that in this environment trading with prudent position size is important. It is easy to get too bearish as many did near the lows, and it is easy to trade with too large of positions.

Currently, the impulse pattern retests are sufficiently tested to be marked complete. A retest of an impulse pattern requires a decent effort to test the breakdown of a impulse cycle - this has been accomplished in spirit. Therefore, probabilities are strong for downside for the markets next steps. It is not uncommon to see people, especially analysts, get rather bullish as the retest of an impulse completes. Equities are currently in working bearish impulses which imply that an ENDING and dissipation phase is needed. A strong impulse to the downside, like a large wave in the ocean, requires a few subordinate waves to release its energy - this is what we call the dissipation phase. Dissipation phases, contrary to perhaps an immediate impression of being moderators, can be violent and travel large distances, the impulses to the downside that are currently working on the indexes, have only just begun and potentially require a significantly more work to unwind. The weekly impulses are especially dangerous and could have downside implications to the 1600s without any surprise. 

The RVS and HAL systems, are currently short with decent size positions and will likely use downside momentum as occurs in the market to book these positions. Also, on a friendly housekeeping note, today is the Bradley model turn date - as scheduled for Friday, October 9, 2015.

Cycle Impulse Retests - Weekly

Cycle Impulse Retests - Weekly

Cycle Impulse Retests - Daily

Cycle Impulse Retests - Daily

Restrained Market Emotions Corroborate August Drop as Likely Downside Breakout

The VIX is a very dubious measure of emotion.

  • Firstly, it is subject to intense manipulation.
  • Secondly, it only reflects panic on drops.
  • Thirdly, euphoric behavior or panic at tops is not reflected or reliable in any form.

For these reasons, mcm eMotion and market fact analysis tools are much more insightful and reliable. What we can see from the chart below is that the markets are in frail shape and still bullish biased (via orange running cash inflow/outflow) - likely to the detriment of those bulls over the short to near-term. Signs of underlying bullishness will likely fight a good fight and remain as markets drop in the future. However, downside breakouts of emotion triggered hard well before the August weakness as can be seen below [4]. Ironically, emotional commitment on this bounce as well as commitment via funds being allocated to equities are mediocre to average at best...also, shown below [3 and 5]. While people may want to assume that the August drop was capitulatory, share directionality [2] and cash withdrawn from markets on daily basis [1] certainly reflect that illusion. These are in fact, more than likely breakouts and signs of much more to come. The reasons for this is the comparative low emotional fear and panic at the recent lows and the low eMotion and commitment to the current bounce. 

mcm Accumulation Index Components

mcm Accumulation Index Components

Note the nearing breakdown below 2009 lows of the mcm Smart-Money Index, the mcm Market Open Index and the mcm Market Close Index. Given the nature of these indexes, they suggest low balances in investor accounts and thus high leverage in the markets and a breakdown could cause dramatic stresses on the markets system as well as the financial system in general.

mcm Indexes and mcm Smart Money Index

mcm Indexes and mcm Smart Money Index

Intraday Projections: September 11th weakness

Yesterday the markers deviated significantly from structural behavior. Perhaps contract roll for futures contributed to this. We published to this deviation potential live in the "Lounge"early in the morning when the markets should have continued their down movement "This bounce should not be happening here via timing and market structure - we are covering shorts for break even. Lots of small trade shorts are occurring while much larger buys are occurring which suggests retail shorts are likely to get run over" was what was posted around 10:30 AM. This is an example of how knowing what the structure of market can be as valuable when it complies as when it does not. Significant deviation from market structure is an early sign to expect the unexpected. Combined with multi-disciplinary analysis such as the exceptional signals from the mcm-Indexes and the eTickTools, we had actionable early insight into the day's developments.

Today there are no particularly bullish outcomes probable for the day session. However, please remember that the markets are being applied strong drugs and are highly susceptible to erratic unstructured behavior.  Keep in mind, weekly projections suggest a sharp upward push soon so keep an eye peeled for the start of any upward momentum...such a move could end up being pronounced.

Note, today is September 11th. Having lived through the 9/11 event directly and personally please take a moment in tribute to this terrible event.

September 11th, 2015 Intraday Market Structure Projections

September 11th, 2015 Intraday Market Structure Projections

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

Market Flux Capacitor in Overdrive – Crash Potential and Techniques to Trade One

Last week we posted a definitive warning that something was aberrant and dangerous in this post: Market consciousnesses running through a flux capacitor. MSP is suggesting a bounce to an early September week one peak. While this remains the highest probability given that DAX and Eurostoxx both show reversal windows on weekly MSP starting this week, these are unprecedented times and as the example in the referenced post states: The market not following its metronome or market structure is very similar to hitting the brake in an automobile with the reaction of accelerating rather than slowing...things are clearly aberrant for what could be a variety of reasons - all of which need to be taken very seriously. A car should slow with a depression fo the brake and similarly the market should slow and react when it reaches its market structure metronome let alone support as in the 2044 area mentioned extensively last week. All reasonable expectations argued for, at the least, a short few day pause or test there, the overrunning of the infection forces, similarly to the eTickTools concept, suggests that the professionals professional was getting run over. Either way I am quite sure that there are a lot of people wishing they traded aggressively to sell a dangerous setup and there are quite a lot more people who are frantic about having bought all the way down. The approach for mcm is, was and continues to be since our post about taking a trading break as opposed to getting blindsided by low probability and risky setups, that the highest probability trades are yet to come and occur in September. That is still the case, a bounce in week 1 of September will likely be at the least a high probability reversal point and a second one towards September 21st. In all of the trading systems we have authored, a characteristic of any market turn is the highest opportunity is NOT when the turn occurs and the breakdown appears but after - and that is our calm and considered assessment presently too. These systems rarely trade the actual turn but rather focus on harvesting the subsequent larger move. We feel that if traders approach this market attempting to harvest this move aggressively - especially without the proper tools, funds are likely to be depleted by the time the real tradable market reveals. For these reasons, we emphasized the danger to all and still advise a high degree of caution.

Meantime, the markets are in an intense state of acceleration with the brake pedal fully depressed (not to mention parking brake on) that we felt it important to share some thoughts and setups to trade a crashing market. When the vehicle just will not stop it can be the ground that is moving, and we would be remiss to NOT further examine this subject. So, to make things easier we added some features to the eTickTools analytics toolset and want to take the time to discuss out methods regarding our cycle oscillation toolset. We feel that refocusing on these tools can help to do exactly what they were designed to do, assist in retaining clarity and consistency in all market conditions but especially in powerful momentum markets such as explosive up or down crashes. The objective is to locate risk and rewards inflection points that retain a reasonable and definable risk reward with an understanding of the market framework and psychology. Additionally, the goal is to retain a significantly higher than normal probability.

Below are charts of the additions to eTickTools. Among them, we have sped up the chart streaming, added the historical extreme background support and resistance lines in such a way as to require a minimum amount of cpu as possible. Additionally, we wanted to emphasize the use of Accumulation Index to help determine what market psychology is being conveyed during a consolidation market behavior or near inflection points. Examples are below.

eTickTools Additions

eTickTools Additions

eTickTools Additions Detail

eTickTools Additions Detail

The cycle oscillation toolset are not technically a part of eTickTools, however, a lot of learning has come from them and some similar concepts apply which is why we added the mcm moving average to the eTickTools charts. We wanted to share and discuss a few details regarding using these tools especially during non-cash hours to help identify impulsive moves. The interesting thing about cyclical oscillations, even on short term charts is that they do not act as high-speed signals that need to chop you up...but when used properly they provide insight into market structures that help orient the mindset of the market - for example impulsive and cyclic/counter-trend oscillations. Below are charts that go into more detail.

Identifying Impulses Down

Identifying Impulses Down

Identifying Impulses Up

Identifying Impulses Up

Identifying Impulses Down Overview Chart

Identifying Impulses Down Overview Chart

Market Consciousnesses – Running Through a Flux Capacitor

Today's action is a cause for some special attention. If you read these pages you will no doubt be aware that we have presented a scenario for analysis purposes that has been accurate, timely and disciplined. Using this approach, we were in front of the sharp rally and the downturn into today. We expected that today would likely be a weak day generally - given the intraday MSP posted this AM and daily flow projection shown on the day-of-week tendency subgraph on the longer-term MSP charts - Thursday's being the strongest close-to-close momentum to the downside. Regardless,  downside potential into the afternoon was highly reasonable and additionally a reaction/retracement/bounce would have been entirely reasonable as well and this was not forthcoming. Today, however, did a few things which are quite concerning.

We do not change analysis to fit the market, Rather we stick with our discipline and accept the distribution of inaccurate projections and unfulfilled probabilities as valuable feedback and information. That is EXACTLY WHAT IS HAPPENING at the present. Though the markets are currently on track with our analysis and we still expect a bounce in the near-term into early September, there were key deviations and issues with today's reflections of market consciousness via our tools that deserve some special discussion.

August 18th, 2015 eTick-Tools X-Tick Breakdown

August 18th, 2015 eTick-Tools X-Tick Breakdown

You may hear us refer to "X-TICK" triggers. X-TICK's are rankings of ultra high emotional exertions by market participants to sell/buy as a part of capitulatory extreme behavior. Capitulation in our terms is described in more detail under the eTick-Tools Core Concpets pages. In order to trigger an X-TICK the urge to sell and energy invested has to rank in the top 19% percentile (most of the time higher) of all selling efforts and events over the last 15 to 20 years. As you can imagine this is not an easy thing for the market to do. Today we opened with an X-TICK and got a decent bounce from it of something like 8 or 9 ES futures points. However, the thing with X-TICKS is that professional buyers (or sellers if the market is rising and generating a buy extreme -as the case may be) like to show up and take weak handed contracts when they are made available - X-TICKS are precisely these types of areas. WHEN these professionals then subsequently get run over the X-TICK is broken and it is demonstrating that the market sellers have real conviction. This was expected this morning and occurred. However, this afternoon we got two more X-Ticks that ranking in the top 9% of all selling emotion extremes in the last 15 to 20 years, and though each got a 5 point bounce or so - they were broken subsequently. Additionally, each X-TICK was at a lower and lower price which is a sign that professional buyers with conviction were not shifting the trend and ineffective. Breaking this many X-TICKS in one day is a serious event and a sign to remain alert. This is a sign of increasing risk to the markets capability to stage its reversal. This can not be overstated. Each X-Tick today, being lower than the previous one, indicates a significant capitulation going on among market participants as a whole. This is always something to keep an eye on.

First thing this morning we got a reasonable negative GAP TOOLS emotional analysis that suggested that the market had normal probability distribution for a gap fill. In this case, that means: "not that likely but plausible". However, it got a high rank (on the first bar of the cash session when it's analysis is scheduled to trigger) that a breakdown would occur below the opening range. This was a large negative as it is often that such an event can lead to a trend day down. In this case, trending down was expected into the 1;30 to 2:00 pm timing window in the afternoon.

There were quite a few reasons that the market was being afforded some room for a bounce this afternoon or in the near-term. Timing, longer-term market structure, convergence of support in the 2044 area (which was pointed out as a possible target for today), a neckline on a very large support shelf that also is a pretty symmetrical head and shoulders pattern and intraday behavioural analysis that would usually score towards some strength showing up this afternoon. As it turns out, the markets ran over these areas after setting up months and months of work above them without even reacting with a small bounce attempt - something reflected in the X-TICK breaches described above. The market had other plans for today. Primary degree support is at 2020.5 to 2010 on the SPX cash and probably is now a magnet before a bounce occurs.

One of the things that is very important to understand is that when the market does not follow market structure, as it began to do today, this is often a sign of a change in market consciousness. Market Structure, the way we measure it and define it, is an objective, transparent and unbiased analysis/evaluation of a market within its contextual probability skew. Therefore, when a difference occurs and especially one that is substantial, it is important to take notice. Today's deviation was just minor so far but could get much more if it wants - so, tomorrow and the next few days will help to make things much more clear. Currently this tracking deviation from probabilistic market structure scenarios, is of significant concern, An analogy of this effect if similar to hitting the brake pedal in your car and instead of the car slowing down it speeds up. It's an indication that something is wrong and it's a warning that aberration and risk is increasing.

Additionally, we closed below the neckline of the 6-month head and shoulders - breaking through it without even bounce at the 2043.5 SPX Cash area - this is very concerning.currently, the market most likely needs to go lower a bit, probably to the 2020 area and then attempt its bounce - which as mentioned earlier should be expected into early September. September offers an early month high or possibly a higher high around the 21st. Currently, as mentioned in today's AM post, favored is an early month high for the US markets with a lower high retest into the 21st. HOWEVER the capacity for this bounce attempt to be very small or worse to become a running pattern is of significant concern as this could easily lead to a panic. Given how much leverage and risk the Fed and other central banks have infused into the risk markets it is is notable importance how markets react to a bounce attempt into early September. If the bounce if very weak and thin, it would be a good idea to increase power to the flux capacitor and prepare for an emotional and high volatility future.

Another Look at the Hindenburg Omen

To significant effect market behavior has significantly changed since the last mcm Hindenburg Omen. This could be a lasting negative or with the very low-quality action on the markets now generate another Omen into September. Either way this chart deserves some respect - the RED marks on this chart are mcm Hindenburg Omens. Notably a cluster of RED triggers is something to be concerned about since these are very difficult to trigger and much more sophisticated than a standard Hindenburg Omen. We will post updates if anything new transpires - but currently this current omen is still in effect and currently working.

mcm Hindenburg Omen History 2007 to 2015

mcm Hindenburg Omen History 2007 to 2015

Intraday Projections: Bull Trap in Progress

MSP Projection have guided us well so far. Yesterday day session went about as perfectly as possible with the MSP bounce timing and favorability indicated live with eTick Tools triggers as well around 1:30 PM.  Today, achieving lows around 4:00 Am rather than highs suggests a favorability towards a more sustained upwards reaction - perhaps into tomorrow AM even. Critical is behavior into 1:00 PM timing. If we are making highs into or around this area - afternoon shifts for pronounced weakness. If market is making a moderate pullback into 1:00 PM +/- probabilities favor strength into the close. Currently weakness after 1:00 PM window is slightly favored probability wise.

August 4th, 2015 Intraday Market Structure Projections

August 4th, 2015 Intraday Market Structure Projections