Chart Analysis
Yesterday the market closed down. In the DAILY ESH15 chart below we are examining the market distance to the first valid LONG support (2032.75) and to the SHORT resistance level (2071.75) that has odds of reversal equal to those of the first valid LONG support. As you can see the LONG support has almost been reached yesterday and may still be reached today as it is only a few points away. On the uptrend side the market has definitely room to go, so as always let’s try to imagine that the market is like a coil compressing in the LONG direction and then bouncing back and then compressing in the SHORT direction and then pulling back and we must be ready to capture profits on these swings.
The latest Higher High (circled in black on the right hand side of the chart below) is also giving us a clear indication that the market is trying to breakout higher, so the process anticipated in the last few days is currently happening and we have to see if from here the market finally pushes higher and breaks definitively out of its latest sideways move.
One of our clients yesterday sent an email to us, where he asked: “What happens to your LONG strategy if a war suddenly breaks out in Russia/Ukraine ?”. Unfortunately we can’t see into the future and it is not possible to estimate what will happen for each global geopolitical event that may affect the stock market. We use quantitative models to avoid the futile exercise of trying to predict the future through fundamental/geopolitical analysis, our models allow us to anticipate market reversals before the news are out, so we can only say that if the market tanks because of a war in Ukraine we will need to look at the TO GO LONG levels and find a good place to enter at discounted prices. The market will bounce back, as always, when that specific geopolitical situation improves and we will be already LONG before the news can tell the world that things are resolving in Ukraine.
TO GO LONG
CCOC – Consecutive Closes Odds Calculator (TIME EXTENSION ANALYSIS)
The TIME EXTENSION ANALYSIS model below shows how many consecutive lower closes (bars) we had on each time period and puts this information in a statistical context.
The DAILY time period gauge shows “2” days down. 74.33% of the events recorded in history are scenarios where the market closed down 2 days and then the next day was closing up.
The WEEKLY time period gauge shows “0” weeks down (updated at the end of last week).
The MONTHLY time period gauge is showing “2” months down (updated at the end of last month). 83.70% of the events recorded in history are scenarios where the market closed down 2 months and then the next month was closing up. If we are still in a Bull Market this is usually a very bullish setup from a TIME perspective.
RL – Retracement Levels Odds Comparator (PRICE EXTENSION ANALYSIS)
The PRICE EXTENSION ANALYSIS model below shows how far a price retracement (downtrend) can go on each time period, based on the statistical analysis of all the historical retracement patterns that share similarities with the current retracement pattern.
The DAILY time period offers good support at the 2032.75 level (highlighted below): 50.80% of the events recorded in history are scenarios where the market does not go lower than this level during this type of retracement pattern. This level is a great place to buy if the market makes a small pullback before breaking out into a new uptrend, so far the pullback is happening, we have to see if this level holds or not, but if the market goes lower 2019 is also a very good support level.
The WEEKLY time period offers weak support at the 2031.00 level (highlighted below, best match for the DAILY level). 7.69% of the events recorded in history are scenarios where the market does not go lower than this level during this type of retracement pattern. This level is not giving us any support for the DAILY trade, but that is OK because the market is uptrending and we won’t get any good WEEKLY pullback during an uptrending market. To get good WEEKLY support we should get a pullback to 1995.50.
The MONTHLY time period offers weak support at the 2037.75 level (highlighted below, best match for the DAILY/WEEKLY levels): 10.00% of the events recorded in history are scenarios where the market does not go lower than this level during this type of retracement pattern. This level does not support the DAILY, but that is OK because the market is uptrending and we won’t get any good MONTHLY pullback during an uptrending market.
The big gauge on the right hand side of the table below shows that 22.83% of the DAILY+WEEKLY+MONTHLY (combined) cases recorded in history, are scenarios where the market does not go lower than these levels during this type of retracement pattern. WEEKLY and MONTHLY time periods are uptrending so they reduce the DAILY+WEEKLY+MONTHLY overall odds of reversal on buy-the-dips. We can use DAILY levels to gauge where to add positions, when the market is uptrending.
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TO GO SHORT
CCOC – Consecutive Closes Odds Calculator (TIME EXTENSION ANALYSIS)
The TIME EXTENSION ANALYSIS model below shows how many consecutive higher closes (bars) we had on each time period and puts this information in a statistical context.
The DAILY time period gauge shows “0” days up.
The WEEKLY time period gauge shows “1” weeks up (updated at the end of last week). 45.22% of the events recorded in history are scenarios where the market closed up 1 week up and then the next week was closing down. In theory this means this week has a slightly better chance to close up than down.
The MONTHLY gauge shows “0” months up (updated at the end of last month).
RL – Retracement Levels Odds Comparator (PRICE EXTENSION ANALYSIS)
The PRICE EXTENSION ANALYSIS model below shows how far a price retracement (uptrend) can go on each time period, based on the statistical analysis of all the historical retracement patterns that share similarities with the current retracement pattern.
The DAILY time period offers good resistance at the 2071.75 level (highlighted below): 55.87% of the events recorded in history are scenarios where the market does not go higher than this level during this type of retracement pattern. This level, if reached, would represent a new Higher High.
The WEEKLY time period offers very strong resistance at the 2068.50 level (highlighted below, best match for the DAILY level): 78.79% of the events recorded in history are scenarios where the market does not go higher than this level during this type of retracement pattern. Usually this type of strong WEEKLY odds will give way to a reversal in most of the times, so we can expect that the market will have to pullback again (possibly mildly) before it can go really higher. This is telling us that the uptrend has still a number of hurdles to face before it can reach higher prices.
The MONTHLY time period offers weak resistance at the 2051.50 level (highlighted below, best match for the DAILY/WEEKLY levels): 37.50% of the events recorded in history are scenarios where the market does not go higher than this level during this type of retracement pattern. This means the market can go higher from a MONTHLY point of view, all the way to 2090, before encountering any serious long-term resistance. Even though the MONTHLY resistance starts as early as 2090, keep in mind there is room to go all the way to 2687, so the model is not saying that the rally will be over at 2090, it’s saying: pay attention from this level, avoid overweighting or adding LONG positions on strength at these long-term overbought levels. From a MONTHLY perspective all this is encouraging for long-term holders because it means once the upcoming WEEKLY SHORT turbulence is over, the market can actually go much higher.
The big gauge on the right hand side of the table below shows that 57.39% of the DAILY+WEEKLY+MONTHLY (combined) cases recorded in history, are scenarios where the market does not go higher than these levels during this type of retracement pattern. Although the MONTHLY is not really overbought, this is quite a good setup to go SHORT.
Summing up: the market may breakout soon and try to go higher but WEEKLY SHORT overbought levels will soon cause a pullback, possibly the last one before the market can re-start its uptrend towards new all time highs.
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