TO GO LONG
CCOC – Consecutive Closes Odds Calculator (TIME EXTENSION ANALYSIS)
Yesterday the market closed down again and made a lower low, but futures started to rise overnight, so it’s possible to have a rebound today. As you can see in the TIME EXTENSION ANALYSIS below, the DAILY time period shows that after 3 days down in a row the market closes the next day up in 87.67% of the times. This means in the largest majority of the cases the market does not go down more than 3 days in a row. Does that mean it cannot go down another day? Obviously not, it can go down 4, 5 or more days in a row, but these events (on average) are quite rare. Statistical research can show what is most possible but the exact prediction of the future will always escape us. We use our research to make bets on what it is most likely to happen (although it may not always happen).
RL – Retracement Levels Odds Comparator (PRICE EXTENSION ANALYSIS)
Yesterday the index pierced again through all the levels, including the 2036.50 level and printed a lower low at 2023.25. In 97.63% of the cases the index doesn’t go lower than the 2036.50 level during this type of pattern, however yesterday it did. This means this retracement down is very strong and rare and we are in a pretty OVERSOLD condition from a DAILY point of view. We have analyzed our models and we have found that there are few instances (like 2% of all the events recorded in history) where the index actually reached the 2012 level.
The next level, 1972.50, has never been reached during this type of retracement pattern. However this level falls in the “tradable range” defined by our model, so we have to keep it in our DAILY trading plan. If the index goes below that level, we will enter the “crash mode” in which case we will simply step aside and wait until the index bottoms. Yesterday we said: the index is very OVERSOLD DAILY, it may bounce, but be prepared to BUY if there is a collapse to lower levels: 2012 and/or 1972.50. These levels have not been reached yet, if you did buy 2036.50 and the index rises you may end up in profit today, but keep in mind these gains may be short-lived, as we are in the middle of a WEEKLY (and potentially MONTHLY) larger correction. The best way to use these temporary bounces is probably to enter SHORT positions and try to ride the correction to lower WEEKLY levels.
Yesterday we analyzed the levels below 2036.50 because that is our next support area, and more precisely we have analyzed the levels that are closest to the 2012 DAILY level, so that if this level is reached you know what the odds are on the WEEKLY and MONTHLY time periods (a convergence of good DAILY+WEEKLY+MONTHLY odds around a specific price area is always a sign that a reversal is imminent). This analysis is still valid for today.
The 2009.50 level on the WEEKLY time period usually sees a rebound in 23.33% of the cases. This means that from a WEEKLY point of view the index will need to go lower than that level to find good support. Our degree of confidence that the WEEKLY correction is over will be quite low if we don’t reach at least the 1968.75 level (45% odds). This does not mean that the index cannot bounce earlier: the goal of our analysis is not so much to pinpoint perfectly each single top and bottom, but rather to find out the tops and bottoms that have a high probability of being a temporary turning point, so we can place a bet with a high chance of success and scalp away some profits riding a portion of the trend. By constantly repeating this mechanical exercise, profits can be compounded in a safer manner than by holding statically positions exposed to the market’s volatility.
The MONTHLY time period shows some decent support at 2010.75: in 42.50% of the cases the market does not go lower than this level, during this type of pattern. We can see that at least from a DAILY and MONTHLY point of view the setup LONG in the price area analyzed below would be favorable, while the WEEKLY is disagreeing, so if you want to be sure to catch a long-term reversal (WEEKLY-MONTHLY) you will have to wait for sub-2000 levels. We don’t know if this can actually happen as it seems there is always a new wave of buyers each time the market goes down a bit.
TO GO SHORT
CCOC – Consecutive Closes Odds Calculator (TIME EXTENSION ANALYSIS)
Last week, after 7 weeks up in a row the CCOC odds comparator below was showing very strong odds to go SHORT WEEKLY. As we are now in the middle of the week and the week is down, this analysis loses importance: if this Friday the WEEKLY Close is negative, the WEEKLY gauge below will be reset from “7” to “0” (i.e. zero weeks closing up). The MONTHLY gauge shows 2 months up at the end of last month, November, so this is as well a signal that is now losing importance as we approach the half of this month and the month is already down. If December closes down the gauge will be reset from “2” to “0” (i.e. zero months closing up). So you can see that the TIME EXTENSION SHORT signal was helpful when the market was rising, but now that is going down is losing importance: our set of signals is in fact a contrarian system, where we bet on a reversal against the current trend. If the market goes down enough we will start to see “GO LONG” signals, but for now we are not there yet.
RL – Retracement Levels Odds Comparator (PRICE EXTENSION ANALYSIS)
The ES DAILY levels to go SHORT have been recalculated after yesterday’s negative Close. In the table below we have tried to highlight the resistance price levels around ~2070, the area where the index last encountered some strong resistance.
The 2070.75 level DAILY is offering strong resistance, price retracements up end no later than this level in 90.78% of the cases. This means that if today the market starts to rise and in the next few days reaches this level, the odds are very strongly in your favor. Earlier levels from 2037 are good enough to try, if the bounce is weak this level could work very well to go SHORT, to enjoy the rest of the potential WEEKLY correction towards ~2000 and lower.
The WEEKLY time period does not offer price levels closely matching the DAILY: resistance is actually between 2058 and 2167.25, a quite wide range, so we’ll consider anywhere above 2058 as full resistance (94.37% probability of reversal). If the index today rises towards ~2050-2060, you could match the 2058 WEEKLY level with the 2053.75 DAILY level: it has 86.52% odds to see a new reversal, so the DAILY+WEEKLY SHORT setup in this price area would be potentially quite favorable.
The MONTHLY time period offers good resistance at 2071.25: in 72.97% of the cases the market does not go higher than this level. Assuming today the market bounces, you can monitor the extension of the price retracement up and figure out the probability of reversal on the DAILY, WEEKLY and MONTHLY time periods by looking at the numbers listed on the right side of each price target in the table below.
