Bigger Picture

The recording to this weekend”s Saturday Review can be found here:
https://roddavid10.mitel-nhwc.com/join/shkjhcy

  For your convenience, here is a transcript of the market discussion:

In perspective, starting with yesterday’s new high, if you notice something about this new high, it came very quickly following a new low. And very quickly following a new low that had reversed trend down, reversing the trend down confirming and producing a minimum of a third lower close, and the market could not wait to get back up to an intraday through its prior high. We don’t have a new high close. We have a retest of the prior high, so we do not have a new high close on a Friday, which is an important point to exclude because trends tend not to end on Friday’s. Even when a new trend high close or low on a Friday, is immediately reversed the following week, the following Monday. That reversal itself fails and the trend extreme is revisited if not resumed. So that’s a protection for the trend and this trend does not have that protection. This trend can reverse down abruptly, immediately, and substantially without a moment’s delay once Sunday nights Globex session opens and not be required to recover to print the new high close for the trend, not this date, so that’s important to note not because we just took it off the table. Why dwell on something we just took off the table. But, because that tells us what kind of a market we are in.

In this case, it actually adds to our understanding of what kind of a market we are in. A market that was having trouble advancing. In fact, two weeks ago on Saturday after Friday, another new high close that was below multiple sessions intraday highs telling us this trend was just done. If it could pull off another new high, it would be rejected abruptly. Instead, it started breaking lower and triggering a trend change signal. Huge intraday moves that gave great signals all the way down. The minimum objective for that leg being 1969. We’re right back in that area this quickly after testing, retesting, re-retesting 1969 when a template that told us to expect a correction out of FOMC was delayed for another test of 1969. So, the template told us to expect a correction into and out of FOMC and by the way, when FOMC had ended, we were stopping pessimistically short of touching two prior highs and that told us to expect that correction to may not be a correction. In any case, the target new highs or a retest of the high. Not that that isn’t still a correction, but a common misunderstanding of corrections is that they cannot produce a new high. They have to erase some percentage of the previous down trend less than 100%. That is not the case. This can be a corrective leg to a new high. It can’t be a runaway to higher and higher highs at some point. It is no longer just a retest of this high. Not some arbitrary point, but a pretty big point in this case because that point is a 61.8% extension of that swing. I’m actually going to go with the outside potential in doing that calculation.

We could get to 2140 and still consider this leg to be just a retest of prior highs. Literally then, it is just a correction. That does not really make any difference. If you have to call it a new rally leg to be able to be long, call it that if you want, but I have to call it until it actually exceeds 2140, if it even gets there. A correction, a retest of the prior high, so I know that it is temporary, not going to last. Going to keep big enough. Keep that in mind and we are going to extrapolate that out backwards actually, historically and move forward. So, there is that much room. It does not have to be that much room. There’s a lesser range that’s actually based off of this pattern that instead of looking at this as this entire swing being retraced, we’re really just correcting this. We don’t get too much higher, 87. I didn’t do this subjective right because that actually should be 8675, but anyway, we can get to 87 area and again, still be in the process of retesting the prior high.

By the way, a retest of this very long and drawn out extended top that reacted down that was recovered aggressively, if it is probed, if it continues to be probed aggressively, which frankly it has to be probed aggressively. Remember at the top, this is a correction. Think of Satchel Paige. Kansas City Monarchs baseball player famously said, “Don’t look back. You don’t want to know what’s gaining on you.” This is a weak-handed rally. It cannot afford to look back and see what’s gaining on it. It has to extend steeply, aggressively, or it fails. And that’s the character of this and it’s retest and how does that fail aggressively. Like this. As soon as this hits whatever level it is hitting to be done, it does not wait around like this topping action did.

So, if that’s the bearish scenario, what’s the bullish scenario? The bearish scenario is to head higher aggressively, optimistically. The bullish scenario would take this expiration high that was just probed yesterday. Once again, closing under multiple sessions prior highs despite probing them intraday and just put the brakes on the rally. Ease off the pedal, pull into a gas station, 2050.50. One pullback objective — the most bullish pullback objective without probing any higher high, before moving any higher high –to fill the gap back to the FOMC-news which actually is a retracement of this down to 1997.75. So, a shallow dip and hesitate here and then lift off has a better chance of extending being a durable bull market. A deeper drop has a better chance at being a durable bull market than does immediately extending higher into next week.

So, am I bullish or bearish? Well as it happens, we had a bullish WedEX. That is, at Wednesday’s close, my Wednesday expiration indicator triggered bullish. Not so much because of Wednesday’s session what it did. It was an inside day. It did not probe under a prior low and reprint. It did not probe above a prior high and was above it. So, nothing really remarkable about Wednesday’s session that you can hang your hat on. It is not what Wednesday’s session did. It is what it did not do and what it did not do was interrupt the sequence that had formed. The same sequence that had told us the template calling for a correction into the FOMC events, would actually extend through the FOMC events. So that inside day unless we are going to be very powerful to the upside, through the close, became a bullish indicator that big money ahead of expiration was posturing out of its exposure, out of its negative exposure to upside. Remember process of elimination. Big money had successfully fully postured to be out of its negative exposure to upside. Downside exposure had been absorbed.

So, at Wednesday’s session, for instance, in the set up that it was presented with. Had Wednesday’s session probed above these prior couple of intraday highs and closed back under them. I am being simplistic here, not just by a narrow margin, but under the last relative portion of those swings, but you get my point. Probe a fresh high, but failed to close above them, that would have been a bearish indicator. That would not have represented patience. That would have represented impatience that was not able to sustain itself. That would have been bearish. And bullish is what we got. Bullish all the way through Friday afternoon and that’s what the Wednesday expiration indicator controls. Friday afternoon and Monday morning. There’s a chance that the positioning, the reposturing by big money would have shifted its paradigms so quickly by returning all the way back up to the prior highs within a day or two. There was a chance that that 180 degree turn into expiration would have then encouraged reposturing in the opposite direction. It happens and, therefore, inverting that signal. But the mornings by its upsignal triggered was not rejected despite testing or fulfilling the bias up target, momentum never reversed down so the signal never inverted. So, Friday afternoon was biased upwards, and if Friday afternoon is biased upward in a bullish Red-X, Monday morning will be biased upward, too. That’s the premise that tends to see the signals success.

Question:Was Friday afternoon biased upward?

Answer:It’s actually not an easy answer here, because here’s Friday afternoon begins coming out of the noon hour, and here’s Friday’s close, cash session close, so we’re pretty much above prior sessions highs. We’ll give it some priors that the session was biased upward. There was a sell here late in the day. Its target was to intersect with this uptrending pivotal support. Actually one, but then fulfill that after the close, so even more so, selling pressure has been flushed out. We will interpret this, I don’t really have any problem interpreting it this way as bulls having been in control, or that is Friday afternoon’s have been biased upward. Higher highs, higher lows. So, if that’s the case, then typically that being in line with the bullish Red-X, for Friday afternoon, so Monday morning will be bullish as well. Higher highs, higher lows. It can be more aggressive or less aggressive, but here’s another important point to note. It does not have to come immediately from Friday’s close. So, post open through the morning, Friday should be biased upward. Rather that means opening flat, gapping up, or gapping down. Friday should be biased upward. We do not have that assurance of continuation from Friday’s close because we know what happens overnight. But, that’s a premise. That’s the lens through which we view the cash session open, that there’s import bias. If something is to prove that, if the opening 15 minutes of volatility trends down throughout, the reliability or not, we may not want to put any money on that. Maybe news events overtake whatever posturing was done by big money the week earlier. So we remain eligible but that’s the premise going into the session. And that’s the problem with ending this rally up here to start a retest to come back and correct itself, take it’s foot off the pedal and pull into a gas station because unless there’s a gap down significant gap down on Monday so that the mornings biased upward price action can be absorbed without probing a fresh high just extending the rally is going to make it vulnerable to reversing down sharply.