What We Thought was a Sideways Range was NOT What We Assumed

May 15, 2015: 4:58 PM CST

Quite simply, what we THOUGHT was a Sideways Range was NOT actually a Sideways Trading Range.

What’s changed our thinking and what does it mean about the current state of the coiled stock market?

Let’s take a look:

First, let’s build off an assumption that we’re challenging.

I’d multiple times recently assumed that the S&P 500 was “coiling” or trading within a well-defined sideways rectangle (horizontal trading range) which was similar to that of January (ahead of February’s breakout).

See the recent posts:  “Still on Breakout Watch for the S&P 500” and “Triple US Stock Market Index Update.”

The quick expectation from those posts was that price would continue bouncing sideways in a sideways trading range.

In reality, what we’re seeing is NOT a Sideways Rectangle Range but instead a RISING, compressing trendline pattern similar to a Rising Wedge.

It makes a big difference, given that a simple breakout beyond a sideways resistance high “should” lead to an impulsive bullish breakout  like that of February. Continue Reading…

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What is Moving in the Market Today Update and Stock Scan May 15

May 15, 2015: 12:31 PM CST

What’s going on behind the scenes of the stock market today as a possible Bull Trap stuns (or perhaps doesn’t surprise) some traders with a failed breakout and range day?

After yesterday’s big trend day session, price couldn’t continue the momentum today and a clear range evolved.

Let’s take a look at the current picture plan what to do next:

Here’s a snippet from Thursday evening’s Member Strategy Report that forecast today’s rally:

Here we are right back at the range resistance high – with another small divergence – and our planning and expectations will be identical to the two prior events (earlier in May).

First, we’ll officially label our “Dominant Thesis” as the range continuity thesis which makes us bearish into resistance with divergences and ready to play short/bearishly intraday (or swing trading) down against 2,120

By definition our Alternate Thesis and thus LARGER move in the opposite direction expectation is the bullish, short-squeezed breakout thesis wherein we will ONLY trade the market from the long/bullish side while it is firmly (not divergent) above 2,120.

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Price held at the highs, creating a narrow range day (so far) between the key pivot point slightly above 2,120 and the lower support near 2,118.

Think of these as tiny zones as opposed to hard walls targeted to the penny.

There’s a lot of emotion – hope, fear, and greed – swirling around at the highs and one side will one as one side loses.

Until then, be patient and trade in the direction of the winning side (bearish under 2,117 and bullish for a short-squeeze beyond 2,122).

Continue Reading…

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A Quick Way to Chart the Cycles in Volatility

May 14, 2015: 1:59 PM CST

There’s a quick and easy way to chart Volatility and assess whether we’re in a low or high volatility period and what’s likely to happen next in the cycle.

Price alternates between periods of High Volatility to Low Volatility and it’s important to adjust your expectations and trading strategies as necessary.

Let’s see one of the easiest tools to chart the Volatility Cycles (highs and lows):

I’m showing the indicator “Bollinger Band Width” which simply subtracts the value of the Lower Bollinger Band from the Upper Bollinger Band.

Bollinger Bands measure two Standard Deviations from the mean or 20 period moving average (default).

High volatility periods in price will increase the standard deviation – and thus the distance of the upper and lower bands – and low volatility periods will decrease the standard deviation and distance.

We can simply chart the width of the Bollinger Bands as an easy measure of Volatility.

You get what you see in the chart above of the S&P 500 (daily) from the 2009 low to present.

Note the “waves” or periods of high and low indicator values that almost look like a steady wave. Continue Reading…

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Is This the Tradable Breakout in Gold?

May 14, 2015: 9:26 AM CST

Wednesday saw a huge impulse movement for Gold into a key target.  What happens if Gold breaks through the current key target resistance level?

Let’s highlight our key levels and plan for the immediate future:

A quick look at the Daily Chart shows a recent sideways consolidation between $1,180 and $1,220.

Note the Fibonacci Retracement Grid which places the 50% “Halfway Point” into the current $1,225 level.

We’ll simply focus our attention at the $1,225 pivot and plan accordingly.

Also note the resistance/reversal intraday candles from February and April that occurred into $1,225.

For now, we’ll note an upside breakout above the $1,225 zone to target a swing toward $1,245.

If gold buyers can push the price firmly beyond the $1,245/$1,250 level then it would trigger a movement into a visual “Open Air Pocket” which means gold could move quickly, impulsively back toward the $1,300 per ounce level.

Otherwise, $1,225 is our focal point for a possible resistance swing down toward $1,206 and possibly under $1,200 to continue the mini-range.

Continue Reading…

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Still on Breakout Watch for the SP500

May 14, 2015: 9:03 AM CST

2015 so far has given us two tight range consolidations in the S&P 500 and we’re potentially nearing the end of the second coil.

We’re on “Breakout Watch” where “Any Day Now” we can see a possible breakout event.

Let’s highlight our key levels and plan for the inevitable future breakout:

Price alternates between two phases:  Range Contraction (triangles/rectangles) and Range Expansion.

Notice the huge “Range Expansion” off the October 2014 low which gave way to the early 2015 Consolidation.

A “Range Expansion” from 2,000 to 2,110 in early 2015 has now given way to the current Narrow Consolidation.

Yes, you can be 100% assured that the market will break free of this trading range into another mode of Range Expansion.

The trick is not to “guess” which direction the market will break and expand – just know that it will and be prepared.

Notice the tight compression also in the 3/10 Momentum Oscillator which itself has formed a Triangle Coil. Continue Reading…

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