No Christmas rally this year - new lows are aheadOld target 3392 (pre-Covid high) is in play by EoY/1st week of Jan '23
Djia
Boxed In...6th January 2023🖼 Daily Technical Picture 📈
➤ S&P500 gapped lower and did not recover. It finished the day sitting on the support level. Price is clearly boxed in a consolidation phase as illustrated.
➤ Exponents of Elliott Wave Theory could interpret the current price action in two ways. In the Bullish case, price is developing an ABC corrective pattern after the 5 wave impulsive move off the October 2022 bottom. The Bearish interpretation is that price is in a wave 2 retracement as part of a 5 wave impulsive move lower from the December high. In either case, it points to a choppy period with a resolution soon.
➤ I currently hold a moderately sized long position.
➤ Conclusion: Who's right and who's wrong?
First Opportunity...5th January 2023🖼 Daily Technical Picture 📈
➤ Once more optimism helped equities start higher in morning trade. Not surprisingly, that enthusiasm waned again as price filled the opening gap by falling back to the support level. The difference today was that the price recovered to close the day above the opening.
➤ Given the strength, I have taken this opportunity to open my first trades of the year. I'm looking for continued strength. The first hurdle is to break above the consolidation high at 387.3 on the $SPY, 390 is then the second hurdle. I don't expect to hold this buy position for long especially if price stays within the consolidation or fails to the downside.
➤ I currently hold a moderately sized long position.
➤ Conclusion: We're off to the races.
DOW JONES Critical session tomorrowThe Dow Jones Industrial Average (DJI) remains within the medium-term Triangle pattern that is trading since December 16 and broke today above both the 1D MA50 (blue trend-line) and 4H MA100 (green trend-line). The two have formed a Bearish Cross and the last two times this pattern emerged was on September 12 and May 04, both Lower High rejections that led to new market Lows.
The 1D RSI pattern however shows that we may already be on a market Low and if we close a 2nd straight green 1D candle (tomorrow), it invalidates all prior bearish bias. In that case, we will target again the 34300 Resistance (August 16 High) and the 34910 Resistance (December 13 High).
The index turns bearish if it breaks below the 1D MA200 (orange trend-line), which made a perfect bounce on December 20. In that case we will target 31725 (Support 1) on the short and 30100 (Support 2) on the long-term.
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New Year, Same Same...4th January 2023🖼 Daily Technical Picture 📈
➤ First day of US trading in the New Year displayed the same volatility as we have come to enjoy/get used to. A firm positive start filled with promise faltered to finish in the red. I hate to repeat it, but once again the support level held.
➤ A break up or down from this small consolidation/sideways market since mid-December should have some legs. The Bearish scenario should be favoured given the lack of bounce to the upside after the recent sell-off in recent weeks.
➤ Value/Mega-cap stocks like the DJIA index hover above the 200-day moving average. Still displaying strength relative to growth/smaller-cap stocks.
➤ I currently hold no positions.
➤ Conclusion: No let up on volatility. Opportunities are coming.
New Year, New Start...3rd January 2023🖼 Daily Technical Picture 📈
➤ S&P500 is still holding the support level. The longer this goes on, the more favourable it is for the Bears. Without a notable bounce after the steep sell-off since the December high, this shows that Bulls have little conviction to push prices higher.
➤ Still, it is a new year and historically January is a positive month due to the "January Effect". Of course, this didn't work out last January.
➤ The broader picture also shows a holding pattern. The S&P500 has made little headway up or down since May of 2022. It has spent much of that time gyrating +/-10% from current levels. The longer this pattern lasts, the larger the resulting directional move. We have no influence on that direction nor the timing.
➤ I currently hold no positions.
➤ Conclusion: It's going to be another great trading year (hopefully).
DOW JONES Will it invalidate the 2022 bearish fractal?The Dow Jones Industrial Average (DJI) has been stuck within a Triangle pattern (dashed lines) since it hit and bounced on the 1D MA200 (orange trend-line) on December 20 but has a clear rejection on the 4H MA100 (green trend-line), which is the short-term Resistance. At the same time we can also see that the 1D MA300 (yellow trend-line) has also resumed its old role as a Resistance, having kept the index below it form April 22 to November 10 earlier this year.
The 1D MA50 (blue trend-line) is now the pivot but technically in 2022 when it broke as Support, Dow kickstarted major sell-offs. Both on April 22 and August 28, the major sell-off were confirmed and Dow extended the selling to a new market (Lower) Low.
This is however the first time since December 20 2021, so basically a whole year, that the 1D MA200 is acting as a Support. At the same time, the RSI on the 1D time-frame is more similar to the May 20 and September 27 lows.
As a result we have technical proof to believe that as long as the 1D MA200 holds, Dow Jones has more probabilities to attempt a test on the 34300 former Resistance (August 16 High) and then move for the 34910 December 13 High. Closing above the 4H MA100 will confirm this move.
A closing below the 1D MA200 however has more chanced of testing the 31725 (Support 1) and 30100 (Support 2) levels successively.
Notice how proportional the Bottom-to-Top and Top-to-Bottom sequences have been since the February 24 Low. If the symmetry continues to hold and of course assuming Dow breaks below the 1D MA200, the next low should be around early February 2023.
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⇄ Sideways...30th December 2022🖼 Daily Technical Picture 📈
➤ Equities bounced nicely. S&P500 recovered above the support level. European indices bounced off the 50-day moving average.
➤ Sideways would be the appropriate term to sum up the price action for 2/3 of the year. If we look backwards to May, the S&P500 has not made any progress up or down. Price has oscillated around current levels by +/- 10%.
➤ It feels like we are in a holding pattern. The longer this pattern lasts, the larger the resulting directional move. We have no influence on that direction nor the timing. Only the Market can decide on the when and where.
➤ The Bulls could argue that despite all the negativity, the equity price has held up well. The Bears would argue that only one shoe has dropped, the other shoe is about to. Either way, next year will be intriguing.
➤ I currently hold a +68% long exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Intrigue is good, but making money is better. Let's do it together next year!
Final Trade...29th December 2022🖼 Daily Technical Picture 📈
➤ The last trading days of the year are upon us and the state of the equity market are very different to preceding years. It's time to waive goodbye and say good-riddance. Let's cheer for a sea change in the New Year.
➤ I made one last Trade to see out the year. Although the S&P500 broke below the support level it has not broken below the recent low of the last week. There's a good probability of a bounce here.
➤ The European indices are sitting just above their respective 50-day moving averages. They too may bounce.
➤ I currently hold a +68% long exposure. My US positions were cut today. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Back in the action.
Low Low Low Low...28th December 2022🖼 Daily Technical Picture 📈
"Shawty had them apple bottom jeans (jeans)
Boots with the fur (with the fur)
The whole club was lookin' at her
She hit the floor (she hit the floor)
Next thing you know
Shawty got low, low, low, low, low, low, low, low"
➤ That's the lyric from the song by Flo Rida. I had to look up the meaning of "Shawty". It is usually a reference to a young and attractive woman. Sexist or not this term nicely describes what's happening with the NASDAQ and the sexier (ahem...speculative) tech names. It looks like it wants to finish the year low low low low.
➤ The whole club (market) was indeed lookin' at her. All imagining the boundless future you could have together...except like many, we were late to the party and the music was about to stop. She's been dancing on the floor this whole time. Next thing you know, she literally did hit the floor in the most unflattering way along with all our dreams.
➤ OK, that's a bit over dramatic but you get the point. As usual, the masses piled on late to an overinflated market and that meant the party was about to end.
➤ With today's price action, once again we had a false dawn. Pre-market was firmly positive only to see it whither away by US market open. NASDAQ leading the indices lower. It's not pretty and getting tiresome.
➤ I currently hold 0% exposure. My US positions were cut today. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Back on the sidelines.
US30- Bullish Channel?No rocket science methodology here. Potential bullish channel. I took longs at the bottom this morning. Will take profits at the top of channel. Will leave some running in case price breaks through and Santa decided to bring us that rally. Caution for reversal back down.. SL's in place. Good luck. Godspeed!
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Same Same, 27th December 2022🖼 Daily Technical Picture 📈
➤ Thing's pretty much look the same as expectations prior to the Christmas Holidays. I'm expecting equity prices to bounce higher. The extent of which will tell us if the Bulls can regain a foothold or the Bears once again take control.
➤ Price again bounced off the Support level at 379/380 on the SPY. Pre- US Market Trade in Asia is firmly positive. Pre-hours have been wildly unpredictable of actual direction during US Trading hours.
➤ I currently hold +34% long exposure. My European positions were cut but I may re-enter depending on today's action. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Watch for the Bounce (if any).
DOW JONES turned the 1W MA50 into Support?This is the Dow Jones Industrial Average Index (DJI) on the 1W time-frame where we look into the current 1W (weekly) candle. As you see, the index managed to turn around the mid-week negative sentiment and closed the week above the 1W MA50 (blue trend-line) and in green. Even last week's heavily bearish candle closed above the 1W MA50. Those are early signs that the former Resistance level which rejected the uptrend on August 15 (red circle), may be turning gradually into a Support.
With the RSI within a Channel Up pattern, the current sequence bears similarities with the June - November 2020 fractal. As you see, that fractal also established the 1W MA50 as a Support (3 times), before making a Higher High on the trend-line and eventually breaking to a very aggressive 2021 rally to the All Time High.
As a result, as long as Dow manages to close above the 1W MA50, we will be expecting a Higher High near the 0.786 Fibonacci extension (35000). A closing below it though, should target the lower Fibonacci levels successively.
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Cheerless, 23rd December 2022🖼 Daily Technical Picture 📈
➤ Equity prices made no further headway. Instead, a large Bearish day threatened to add to a Cheerless Christmas. Price managed to recover some losses by end of trading day leaving things in the lurch.
➤ NASDAQ is performing miserably. It's almost back to the lows of the year. One shouldn't be surprised it is lagging so badly. Used to being valued with a zero % interest/discount rate the exact opposite narrative of higher borrowing costs for longer is now firmly entrenched.
➤ I currently hold +68% long exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Belated Christmas Rally anyone?
DJIA : Minor Reversal will lead to Stronger Sell offs???Levels to watch out have been marked in the chart. Expecting a stronger sell off, if market bounces from here !
A very tight Short Trade on DJIA 15 MinLevels as mentioned in the chart, its a quick trade. Lets see where it goes
Inspired, 22nd December 2022🖼 Daily Technical Picture 📈
➤ If yesterday's bounce was uninspiring, the Bulls were clearly inspired today. It's almost Christmas Cheer time after all. The VIX has collapsed back to the pink highlighted zone in the chart. Let's see if the Bulls can break below. It's been bound by this zone since the start of the year!
➤ I'm not looking for a big aggressive bounce. Although that would be a nice surprise. There has been a change of momentum in the rally since the Oct bottom. 390/3900 resistance looms large. The European indices are acting relatively stronger bouncing off the 50-day moving average.
➤ I currently hold +68% long exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Back in the action. Rally time?
Uninspiring, 21st December 2022🖼 Daily Technical Picture 📈
➤ We saw the smallest of bounces in the S&P500. It was uninspiring. Still, an upward move has to start from somewhere. Today may be the day to risk some capital.
➤ Uninspiring too is the Poll I took about people's opinions on which group of market participants might do well next year. 45% voted for "Everyone is a Loser". The contrarian in me would suggest that gives hope for a decent positive performance for equity markets in 2023.
➤ I currently hold zero exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Waiting on the sidelines for an imminent trading signal.
Where are the Bulls? 20th December 2022🖼 Daily Technical Picture 📈
➤ Equities continued their free-fall. It has now given back 50% of the gains as measured from the Oct bottom to Dec top. Price has reached a support zone. This is an ideal area for prices to rebound higher.
➤ Can you believe it? There are only 8 trading days left in the year. It's been such a tumultuous year that I can't even recall all the ups and downs. As a Trader, I can normally replay all my trades in my mind. With the roller coaster nature of the price movements, those trades have all been mashed up. That being said, I can't wait to see what surprises the market will throw at us next year.
➤ I currently hold zero exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Waiting on the sidelines for an imminent trading signal.
DOW JONES Similarities with Dotcom crash. 1M MA50 is the key.The Dow Jones Industrial Average (DJI) is trading on a red December candle, following the extreme rise since October that broke back above both the 1M MA50 (blue trend-line) and 1W MA50 (red trend-line). The 1M MA50 seems to be the key for the uptrend as (excluding the COVID crash), is the line that keeps the multi-year uptrend intact since 2011.
However, the 1M RSI sequence displays a lot of similarities with the 2000 - 2002 Dotcom crash. As you see it also made a marginal break above the 1W MA50 after rebounding on the 1M MA50 but then corrected way more after it lost it (1M MA50) again. The red flag shows where potentially we could be at today. Notice that a similar -38.60% drop would hit or almost hit the Higher Highs trend-line since the 2000 Dotcom Bubble peak.
As a result we consider the 1M MA50 as the key. A new break below it, practically confirms the extension of the 2022 correction for another year. Until that happens though, it is more likely to see the 13 year Bull Cycle continue, targeting 55k in the next 4 years.
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1st Leg Down, 19th December 2022🖼 Daily Technical Picture 📈
➤ A Change of Character "CHoCH" has occured in S&P500 uptrend since the Oct bottom. The drop since 13th Dec looks to be the largest in size. This changes the momentum of the Bulls. Either Bulls will take pause with some sideways movement prior to igniting another run higher or the Bears will now come out to play. I favour the Bearish scenario right now.
➤ Price has closed the 10th Nov price gap. There is an opportunity for price to rebound higher to relieve the recent selling. The resistance at 390/3900 would be an ideal stopping area for the next leg down if the Bearish scenario plays out.
➤ I currently hold zero exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Waiting on the sidelines for an imminent trading signal.
$DJI reached expected area, forming Inverse head & shoulderRecall we said this area would be $DJI next target?
Broke but #DJIA rallied to it
IMO sideways likely outcome, slight lower bias atm
We said this a few few times but kinda paused as #stocks went higher, original assessment stands
Takeaways from the Fed Chair SpeechCBOT: Micro E-Mini Dow Futures ( CBOT_MINI:MYM1! )
The Fed’s 2022 Rate Decisions
While we reflect on 2022, an eventful year full of “the unexpected”, rate hikes have undoubtedly dominated the headlines. In eight rate-setting Federal Open Market Committee (FOMC) meetings, the US central bank hiked the Fed Funds rate seven times, taking it up from 0.25% to 4.50%.
The US Consumer Price Index (CPI) was 7.0% in December 2021. After a quick runup to 9.1% in the first half of the year, it came back down to 7.1% in November 2022. If the trend continues, we may end the year with an inflation below our starting point.
However, current level is well above the 2% policy target. While the Fed emphasizes the need for on-going tightening, it expects inflation to be above 3% at year-end 2023. The Fed is on the right track, but there might be more to do.
How did the Dow Jones Industrial Index React to Fed rate hikes?
The Dow (DJIA) reached all-time high of 36,952.65 on January 5th. It pulled back 22% to 28,852 by September 30th on the back of three consecutive 75-bp rate hikes. DJIA closed at 32,920.46 on December 16th, down 10.9% year-to-date (YTD). The Dow’s Price/Earnings (P/E) was 20.49 on last Friday, down 6.9% from 22.01 year-over-year (YOY), according to Birinyi Associates/Dow Jones Market Data.
For a comparison, S&P 500 hit 4,766 at year-end 2021 and closed at 3,852 last Friday, down 19.2% YTD. The P/E ratio for S&P was 18.91 now, down 35.1% YOY (28.69).
Nasdaq 100 closed at 15,645 at year-end 2021 and settled at 11,244 last Friday, down 28.1% YTD. The P/E ratio for Nasdaq was 23.52 now, down 32.2% YOY (34.71).
What do the datasets tell us? The Dow experienced a smaller correction (-10.9%) this year, compared to the S&P (-19.2%) and the Nasdaq (-28.1%). Its valuation, as measured by P/E ratio, is in line with the S&P and Nasdaq, all in the range of 19-24. However, the Dow’s P/E declined less than 7% from its top, vs. over -30% drop for both the S&P and the Nasdaq.
Any trading opportunities?
On December 14th, DJIA opened flat at 9:30AM. It began to fall after the Fed released its rate decision at 2:00PM. The index nosedived when Fed Chair Powell delivered his speech at 2:30PM Eastern Time. By the end of the following trade day, as investors fully digested the Fed’s policy, DJIA lost 884 points, or -2.6%.
I put together a cheat-sheet to decode how DJIA anticipated and reacted to Fed Chair speeches throughout 2022. I denote T as FOMC date and T+1 the next trade date; Market Open at 9:30am, Market Close at 4:00pm; Rate decision release at 2:00pm, and Fed Chair Speech starts at 2:30pm; all the above in eastern time zone. Market reactions are represented by Up and Down.
From Market Open (T) to Market Close (T+1), the changes in DJIA value were January -342, March +829, May -174, June -643, July +665, September -743, November -575, and December -884. All market data on DJIA is from Yahoo! Finance.
Market anticipation and reaction were mixed in the early stage of this rate hike cycle. However, more recently, investors tended to have a rosy picture going into the FOMC, trading on the assumption of Fed Pivot. Each time, the Fed Chair speech brought them back to the reality of continued monetary tightening.
DJIA declined six out of eight times. Average two-day change for DJIA during the last three FOMC meetings is -734 points. If we were to place a Short Futures order for Micro Dow Futures (MYM) for two days, we would have made a very nice Christmas bonus.
MYM contract notional value is $0.50 per index point. Initial margin is $750 per contract. Hypothetically, if we captured 400 points, our 2-day payoff would be $200, or +27%.
What’s the takeaway?
Trading opportunities exist because the market is not aligned with the Fed. While Chair Powell made the point of fighting inflation forcefully over and over, investors did not take him seriously and kept dreaming of reasons for the Fed to end monetary tightening.
While the Fed moderates rate hike to 50 bp, Chair Powell states that 4.25-4.50% Fed Funds is not restrictive enough. He emphasizes the “on-going” need for tightening. Policy target for inflation is 2% and there was never a discussion to raise it. It’s very clear that the Fed’s overarching goal is to bring inflation down to 2%. Pausing is premature.
Next Fed meeting is on Jan. 31st - Feb. 1st. If DJIA repeats itself and moves up ahead of the rate decision, we may explore day-trading opportunities.
In addition to the DJIA futures, similar strategies can be applied to Micro S&P 500 Futures (MES). MYM traded 285,803 lots with an open interest of 48,564 last Friday. Micro S&P is even more liquid, with daily trade volume exceeding 2 million lots.
An alternative to the futures strategy is Options on futures. Put options on the March MES contract is currently quoted at $24.00. Options have bigger upside potentials if your market forecast is correct.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trade set-ups and express my market views. If you have futures in your trading portfolio, check out on CME Group data plans in TradingView that suit your trading needs www.tradingview.com
