Mella’s morning note to clients below.
I want to keep this simple and get straight into the charts. But just quickly we have to acknowledge here the dynamics of the markets.
Europe started the decline first. Everyone thought that the US would be immune to the decline. It’s the safe haven blah blah. Just keep piling into the US, Europe doesn’t matter. Well those theories ended well. Then the $RUT started to roll and this too was ignored. Trade war is over blah blah. Bottom line: I’ve said a million times keep the noise out, look to the charts. Understand what the market makers do. Tops are hell, low volume monkey crap for months on end. Bottoms are violent and dangerous. We’ve been with u guys for almost 5 years and we have been to hell and back with the bulls and the bears and many of u are day one members still. The last correction was brutal and this has been the same. Let’s not forget how they blew everyone up with $XIV. Expect the unexpected. Technicals work until they don’t. Levels hold until they don’t. Positioning is key with risk. Stay humble. We are NOT in charge. We remain in full alert mode here. None of what i’m saying is new. Be smart.
So like i said Europe and RUT led us down. So these charts, not the news, will lead us back up, if of course we are going back up. I was saying last night, it just seems too early still to be heading into a bear market. But who knows. The PPT and Trump will certainly be watching down here. And so they should because technically these monthly charts are warning big time.
Technically the warning signs at the top were multiple.
Monthly weekly divergences. Weekly wedges, daily wedges, Europe dropping, Fangs became wobbly, banks did not rally. $VIX compression. The list was endless right? Multiple multiple confluences. And then the best indicator of all time, bears were throwing in the towel and the mental torture took over. Mantra was “we will never go down again. I’ve said this a thousand times. Charting is the easy part, focus and psychology is the hardest part. I can scream “STAND FIRM” like I said at the highs but it’s hard and i get that.
Technically down here it’s def tricky. Why? Because the line up isn’t the same down here then it was at the top. Meaning technically the weekly and the monthly charts are not lined up. Unfortunately the last time the monthly chart lined up was in 2009. So if that’s what u are waiting for best sit tight!
The daily charts are clearly in buy territory and ANY new lows brings the weekly charts in the picture. Of course everyone is asking will we get those new lows. Technical analysis is about levels and confluences not about clairvoyance. If one level breaks we go to the next. Measured moves are key as they produce targets but sometimes the market monkeys also see these and u can sit there and wait for that exact level and it never comes.
So bottoms are tricky – they always remind me of trading the oil markets. Example key support is at 60 bucks and all the confluences are there. Price takes u to 60 bucks and 85 cents and then runs. Hence why i’m saying positioning is key down here. No difference to the top really. The tops make u think markets will never go down and the bottoms make u think they will never stop going down! It’s hard yes!!!
Ok lets look at charts with a view to CATCHING this bottom. This is my call, no ifs or butts. Short term markets are a buy, period.
$VIXSPX remember this?
Well here’s the update:
Clearly on this 3 year chart we haven’t ‘met’ yet and we might not. (great catch tho right?) 🙂
And of course the warning signs and observations were all there based on the daily chart.
$VIX daily – FIVE MONTHS of MENTAL TORTURE!
Now this is where it gets tricky – remember all i’m doing is observing what direction the market can go in. At the top i said down. The hope was keeping you all on the right path. Down here my observations is that a bottom is in progress.
So look IF i go out 2 years instead of 3 years we have ALMOST met.
$VIX 2 yrs
This would mean any new low is a buy.
BUT if i change my settings to a year and a half year chart we have already met.
$VIX 1 Year and 6 months
THERE IS NO ALCHEMY IN TRADING. Just trading probabilities and good risk management.
So technically we ‘could’ have seen our bottom.
I’m not going to go thru a thousand charts. We know the daily charts are cooked, we know the 2 hr charts have divergences. We know the signal charts are cooked. My spot last night on the $BPSPX was especially key.
Here’s the chart again with my notes.
“Just quickly the $BPSPX 4 year chart shows RSI at these levels are major lows on the market. We can definitely rally and drop further like we did BUT message is major lows”
4hr charts on $SPX def look bear flaggy here so a further dip or fake out low etc is def risk. BUT take note of the $RUT and $DAX here. The $DAX bounced 200 points yesterday WHILE $SPX went down. The $RUT held DOUBLE bottom and led the rally yesterday. Always gotta look out for clues.
Could this next rally be a dead cat bounce? Of course it could, no one knows yet, it’s too early to tell. So i repeat our go to DAILY chart is the $SPY as its been the cleanest.
$SPY daily – obviously IF we break this channel then next key support is 265. So all eyes on this chart and of course the $VIX.
The target on this inverse i spotted is 31 – we hit a high of 28.84.
In an ideal world $SPY would hit 265 and $VIX 31/33 – they would then both join on the larger charts and off we go, but we all know there is nothing ideal in trading. If u dont like it get out. Only the strong survive!
Capturing moves is what trading is all about. No one will ever get the exact low or high. Trade opportunity at 2900+ area was a short. Trade opportunity down here is a long.
So short term bounce yes. And maybe our lows. What changes this? Well of course the $SPY monthly chart:
I will continue to update and observe on stream. Good luck!
Categories: Market Analysis