Saturday Review

They rang a bell at Friday”s top. Did you sell it?
My subscribers did.

I”ll be discussing that, and more, during this morning”s Saturday Review, which you”re welcome to attend for free. Just
email me for the link…

Some of my proprietary setups we”ll discuss include the
WedEX and Expiration”s Open, unfinished business above and below. We”ll discuss why Friday”s high might be “a” high, but can”t be “the” high, and how to know whether the high is even forming.

That”s the first half. The second half is reserved for your stock
chart instant analysis requests.

“Rods observations and measurements that predict specific levels of influence in the market remain the most valuable I have seen in 15 years of speculating.” — SW

So, join us Saturday morning for my weekly Saturday Review, for free. Get the
free Saturday Review link by emailing me at marketfy@roddavid.com, or call me at 913-663-2366.

“There is no one better. I”ve been a subscriber for almost a decade and his yearly service cost pays for itself in my first month each year. He gets my highest recommendation.” — MK

By the way, here”s yesterday”s signals (circled) through the noon hour”s low:

Rod David (913) 663-2366

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For your convenience, following is a transcript of the Market”s Bigger Picture portion of this weekend”s Saturday Review (linked here):

Good morning. Welcome. It’s Saturday. Time for the Saturday review and there’s a cold snap coming literally hours away if not minutes from bringing snow with it. Seasonally, the market is looking forward to, we just had Veteran’s Day. We have Thanksgiving. January effect right around the corner. Taxes laws selling pressures. Maybe had something to do with the last down draft. I say last because I want to differentiate from the current that may be building, but traditionally, there’s tax law selling pressures. October’s a tough month. Santa Clause rally. Seems to be a little early this year. Often, when we see the Santa Clause rally, which is really just an early version of the January effect when tax law selling pressures have subsided or when the equilibrium has flipped. When there is such an early rally or pre-Santa Clause rally is the word, there’s another dip. Not everybody gets out when they wanted to and whoever is buying the dip, even from an investment standpoint, maybe looking at some pretty quick gains, back to resistance.

In any case, we have two directions, two possible directions. The prevailing direction always gets the benefit of the doubt. The reason why the prevailing direction always gets the benefit of the doubt is because that is just the odds that whatever happened yesterday or over the last several days will continue happening tomorrow. I used to interview top traders and technicians on one of my previous sites. The one I launched back in the 90s, and I won’t say who it is, but he was on the phone with me. This was before we had webinars. We just had a chat change and a subscriber asked the question, what do you think is a good buy for tomorrow? And I relayed that question to him and he asked his assistant, “tell me the top three stocks today.” So, we are certainly going to try to tempt fate by calling every single higher high the high.

Everybody ready for the but? There is no but. But there is a however. However, there are some things to consider. As I started out describing that the timing of being in October, already having recovered pretty much all if not all of the drop. That alone on that time schedule leaving two entire months before January, before year-end, does create the potential for at least a higher low. So that is a template that traditionally if there’s an early recovery, why not. There’s time for one more dip and probably a round trip back up. But apart from that, that really is my only bearish template. There is nothing impressive about buyers. It’s not that buyers are making any great strides here. Let’s just look at the last week in context.

So, here’s the last week beginning Monday, basically around there. We had a new high, not necessarily a new high close on Friday. That is not necessarily bearish. Had the market wanted to turn down, it could have. It wanted to reverse down without leading any unfinished business above. Of course, there were some other things going on like the trend exchange, but based on that one indication that trend extremes just do not print on Fridays. If there’s a new high close on a Friday, that is probably not the end of the trend. Even if there is an immediate down turn, it’s going to recover for another higher close. That is a defensive tactic, a self-preservation tactic for a rally because we have that extra real estate and if needed to be able to rest on those laurels. It wasn’t delivered or wasn’t produced last Friday and that did not matter the market expanded higher anyway. It took a few minutes Monday morning, and even then, the entirety of Monday’s gain was at one surge.

But since then, there’s been nothing. There’s been probes. There’s been overnight highs. Monday afternoon was the first three consecutive timing windows:noon hour, bias environment, and last 60 to 90 minutes. Everything after 11:30. It was the first instance of three consecutive timing windows to print exclusively above all prior intraday highs for the trip. And that’s an important event. I call that a trend change warning. It is not the trend change signal. In fact, it often is exceeded, but it is a warning and it does not always produce a trend change. And that is the bullish scenario. That there’s a trend change warning. Basically the clock starts counting down. Where we set the clock to, the countdown clock, we don’t, but basically, its that concept that this can continue indefinitely, but not intimately. That price continues ranging around that Monday afternoon high. That price can probe higher, but it is not making any gains. Monday’s highs, the higher the session that contains that set up is a relevant reference point, landmark. That’s 2035 bases features. We’re looking at cash right now, but bases features 2035 was Monday’s high and it’s been influential through timing windows, through closes. Closes above it have only been overlapping it. Probes above it have not made it more than one timing window, exiting more than one timing window, if that at all above it, that is above 2035.

So, it is holding tight, but even though this can continue indefinitely, at some point, this distribution is absorbed and rather than becoming top heavy and finding that buyers being distributed to have been depleted, so that there is no more buyers to continue supporting that ongoing stream of supply. Supply runs out before buyers. So, that’s the bearish scenario that last Monday’s trend change signal had its shock, and now it is back up to more rally. There is, of course, the midpoint that passed down immediately. The longer that trending, especially when it is relatively narrow, longer that trending persists, the less likely that the ultimate resolution is the immediate resolution. The less likely that the first break is in the direction of the ultimate resolution so that if this range intends to break lower, it is going to need to probe higher first aggressively. If this range breaks aggressively lower first, after so much time, we will give someone the benefit of the doubt because there’s no unfinished business above. So we will give sellers the benefit of the doubt for at least being able to produce a corrective drop of 61.8% retracement of the rally which actually creates about 2011 bases features. This is about 2018 for these prior lows, basis cash.

We will give them the benefit of the doubt that that for retracement because that’s easy. That doesn’t require attracting new sponsorship. It just requires having run through the buyers that you had. Price call fall of its own weight, is an old general saying. But if price breaks lower first, we will expect that to be only a temporary correction. Probably only 61.8% correction of the now, or coming up to, I should say, two week old rally leg and then whatever the intent, that will return to the highs.

A couple of questions.There are many corporate buy backs in the last two months and that should keep the market going higher. What do I think about that?Also, banks are taking over where the fed left off by the bond purchases.

I don’t really think about that. Those are regarding turning a technical analysis, the theory is to turning a technical analysis is that smarter people than me have thought about it and factored that into or discounts that into what they are willing to pay or take in buying and selling and the degree to which they’re looking forward at things like that and many other things, is what’s cleaning the patterns. How deep are they willing to let price fall before it recovers. How long does it take to recover versus how long it took to drop, a lot of different pattern points, but from a fundamental standpoint, if those buybacks are still slated going forward, then that is certainly something that is not scaring away buyers and stuff to attract sellers, but I suspect that is all discounted in the price. Corporate buybacks do not have to happen at any particular time. I think they are basically tasked with resolution. Tasked with buying back x-amount and then working the order basically over the course of time. So, they will support their own stocks, but not necessarily prevent the market from turning down.

So, not necessarily a big turning point here I don’t think. That this is on the verge of launching a new and durable rally leg because if there’s a false break higher, the next higher objective and that is above 23950 which has been outstanding for a while, 23950 basis BF which is where we have been topping out except for one probe. The next higher resistance point is 2048, so a false breakup to 2048 and reversal down would give the benefit of the doubt that sellers are already taking control of that reversal down is back under the prior lows. Remember, we had in this ongoing pattern a set up that was outstanding that once there was a probe above a prior sessions high, if it was reversing, it was going to reverse under that prior sessions low. The pattern has already delivered it on Thursday from a minimum objective for this reversal was back under Wednesday’s low that is a little responsible to do that but that is off the table now. That means that if there is another fresh high that reverses back under a prior sessions low, or that reverses the reversal, it’s not just to get to or probe the prior sessions low, but it is the corrective dip or more.

Question:In looking at the open interest in excess options for the next week would be quite beneficial for market makers to take the market down. Interesting. I will look at that. I don’t generally look at that because I haven’t looked at that except in the past. It definitely creates vulnerabilities and it’s probably already what is keeping pressure on the market, but for a timing tool, I have not had success with that, but it just adds, I agree, to that vulnerability.

Alright, one more discussion about the broader market that is just to compare among indexes. So, here’s our control group, the ES, higher highs. Big pull back under the prior low to a relevant degree, but see how it compares to the Dow which kind of gotten carried away relatively speaking. It’s higher high is not so much or at least it is poking it’s head above the plane. It’s retracement down where that last swing corrected 100% basis ES. The Dow was more shallow. Again, it is an ES. It sort of landed here but extended down deeper. And here which really then an extension as being the institutional side of speculative activity or reflection, have very shallow pull back and now are coming in just a little bit under, under performing the Dow, relatively speaking to prior highs certainly outperforming both but as far as the rate of improvement, trying to see the speculators, speculations in the case of the NDX that is based on more chasing yield, the yield of the equity return versus the 0% borrowing cost to get it.

Trying to see what that speculative fervor is relatively speaking, slowing. Wouldn’t know it without comparing historically, and then the poor man’s speculative index just making it back to break even versus the last time. So speculation is starting to be sucked out of its market and speculation has kept us from getting overly bearish or at least leaving the door open to a recovery on every other downleg, and that seems to be waning.

So, let’s go back to the Dow. The Dow which is what we are going to call the Russell, the poor man’s speculative index, then we are going to have to call the Dow the dumb money. Basically, the no brainer money would be polite. Portfolio managers who are mandated to have some degree, if not a large degree of exposure to equities at all times who may not feel like going out on the speculative curve be it Russell, NDX, or S&P even among the 500 companies to choose from but just the “safest” was widely followed, much liquid, oldest, most consistent reporting, less surprises, and that the Dow is out performing both the speculative and are control group, the S&P, suggests that not necessarily at a turning point, but that the no brainer money does not see the risk or the reward that is being with the risk broadening their horizons but it is not a turning point yet.

Real quickly, just comparing there was an interesting blip up this week. That was Thursday. Again, there is the Dow, big blip up Thursday, and during the bias environment, or as the bias environment gets underway, probing into negative territory and recovering it. So, outperforming S&P’s which big blip up before the noon hour already, probing into negative territory, and not recovering out of it. So the Dow outperforming even on a microscale there for only one day so it’s not yet a signal but except when we want to watch for other symptoms or the same symptom repeating itself especially since it is premature to consider that to be a reversal since at least on the same day that NDX also probed higher also reversed in the negative territory going into the afternoon’s bias environment and closed positive. Notice that the next day, Friday, trended higher but did not do anything that Thursday’s session had not already accomplished. If there’s going to be a turning point, it ought to be obvious within 24 to 48 hours and 48 hours is on the long side.

So, Sunday, Monday gapping up, trending up. Buyers do not have any traction here, so if they don’t make it through the opening 15 minutes of volatility pointing higher, whatever that preliminary level is because they don’t go on to trigger bias up, then that’s not necessarily a sell signal but any touch of resistance in that environment is. If we’re going through the week and we’re selling off, again, once especially with the ES, once that breaks under a prior low, so for instance, with ES if we’re breaking under Wednesday’s low again, not necessarily Thursday’s, but Wednesday’s low again, then we will do a benefit of the doubt and see there being a corrective dip underway. Should be a new mentality when we get out of the week after.

Here”s the link to yesterday”s Saturday Review recording, and the transcript of its market discussion to follow along…

Good morning. Good morning, and welcome. It is Saturday. It”s time for the Saturday review. Thank you for joining us today. There”s really not a lot to discuss, except conceptually. I really have fleshed this thing out, but just to do a review of where we”ve been, so we can get to where we might be going and how to play Sunday night and Monday morning”s different possibilities. Kind of a rally, a little bit of a rally just experientially. This is kind of a substantial retracement already reversing on a dime, quite literally the bottom at the low. Regardless of the requirement, and it is a requirement, that the bottom be retested. This relatively substantial retracement entirely of this relatively sizeable drop isn”t going to, again, reverse on a dime. If it does, it”s an anomaly. Not meaning, “Gee, that”s the exception” but meaning, “look to buy it.” It doesn”t mean that this retracement, having been so productive so quickly, so substantially, is itself going to necessarily extend to new highs, although, that is a possibility to retest the prior high, just in the context of retesting it. This leg down had an opportunity to peak, or it”s retracement had an opportunity to peak, in a couple of spots. 1890 area, 95 was one. 1920.21 area was another, and just getting through, finally, the 1921 areas that this leg down isn”t being corrected. It”s being reversed. That”s not to say anything about it. It doesn”t say anything about the bigger drop because the high doesn”t have to be retested. Now, there”s some unfinished business up there, like a new blowback trend extreme. That”s another issue. That”s another characteristic of the market, a behavior that intends to return to those. It always has, so I assume it always will, but as far as counting out this decline, it”s running out its news.

Basically, this pattern, having been retraced through its lower end, actually, which is the level that it was testing on the way down. That”s been confirmed, and I”ll explain that in a moment. We”re not just correcting this down leg. That”s done. That opportunity is gone. We”re now reversing that down leg. It doesn”t mean it has to be reversed 100% or in the opposite direction that is 100%, the same degree, or to any degree. Just, the upper end of this pattern has to be probed. As it happens, that upper end of that patterns probe is targeting 1984. Now, there were a couple and still are a couple of one more resistance points along the way. One was at 1941, 41-43. 1941, rounded up to 43, and that was tested this week. 1941, the day following the close above 21, 41 was tested, 41.43, and it reacted all the way back down to 20.21 and held it. That was the opportunity for that resistance to jump in there and say, “Yeah, actually, this is the noise around 20.21. Change of plans here.” That can happen. It doesn”t happen often. When it does happen, it”s because something substantial is unfolding, and in fact, retrace substantially, not arbitrarily noisy, but right back down to the origin or to that trigger at least. That opportunity then, for that resistance to 41 to assert itself as being the peak of the corrective bounce, that melted away as well when the complete reaction down itself was recovered. That was Thursday. That was recovered. How powerful is that? Not only to signal that there is a more substantial target in play at 63.50 along the way, resistance 41 and 53.50 on the way to 84, not only was that first resistance as productive as it could be and still shut down, marginalized by Thursday”s gap up. How powerful is that? It”s this powerful. It”s this powerful that after 1921”s recovery, 41.43 reversed all the way back down. That was shut down.

This big plunge in reaction to the Ebola headline, and we”ve fleshed this out quite a bit this week, but the point being, it”s the relentless point that we”ve addressed. I don”t know how many headlines that have nothing to do with the market, and Ukraine and Russia tensions every time, every selloff was recovered, every pessimistic headline if it”s not financially related and even if it is, it”s probably already discounted. So, those sellers are kneejerk reaction sellers, recanted by definition. By the way, they aren”t selling because of what happened. They”re selling because they”re afraid of what follow on headlines are coming, and so, even when those other headlines have come, they”ve already sold. I”m sure that”s going to convert some more pessimists, but fewer and fewer. So, how powerful was that rejection of the rejection, recovery of the rejection? So, 41.43 back down to 21, that was rejected, and here we can see that was Thursday afternoon. Thursday night”s follow on totally gone by yesterday”s open, and then pretty much into and out of the Noon hour, so what does that scare? It”s pretty powerful. I”m pretty sure that we”re headed higher or that we”re going to be higher.

I”m not so sure that it”s going to be very immediate. Here”s a couple of reasons why. First of all, I pointed out just as 1941 was the interim resistance, the first of two interim resistance points on the way to 84, the next one is just around the corner at 63.50. Friday”s cash session looks pretty close, right? Just a couple/three points higher. Friday”s cash session close equated to 58.25, so there”s that much extra buying pressure being expended after the cash session close. Was it deserving? Not so sure about that, because when we look at the afternoon parameters Friday, here”s the Noon hour”s range, here”s the bias environment”s range. Final hour”s entry and 310-320 window didn”t do anything, we”ve already been highlighted. So, the bias environment”s exit,would you say that that was within the Noon hour”s range? I would. The final hour”s entry, would you say that was within the Noon hour”s range and the bias environment”s range? I would. In other words, buyers aren”t gaining any traction for their efforts. Buyers aren”t gaining any traction for their efforts.

Now, it”s a matter of timing here. Had the bias environment exited at 2:30, had that been above the Noon hour”s high, that would have marginalized sellers for the balance of the day. It would have been, usually, financially suicidal to try and short that or step in front of that, and often, the balance of the session rallies. The balance of the session rallied anyway. That doesn”t preclude, that”s not bearish, it just marginalizes sellers. It”s not bearish that the bias environment wasn”t exited above the Noon hours high, and the final hour didn”t offset either. This is not bearish. It”s not bearish, not necessarily bullish. It so happened that the rally extended, but that”s the problem. The rally extended when it didn”t have to. It would have had to extend had the bias environment exited above the Noon hour”s high. That would have represented buying pressure needing to be rewarded. That would have represented that weak-handed selling pressure couldn”t prevent, at that very late point in the day, buyers from gaining traction. So, despite sellers preventing buyers from gaining extra traction here, buyers will still rewarded. For what? For nothing. That tends to have a consequence. That tends to have the consequence of being reversed immediately at the following open. On a Friday, by the way. Not a lot of setups outlast the weekend. Just as often on Fridays, when that setup appears at the close on one day and that day is a Friday, just as often, that can be a risk on Monday.

We didn”t look at an old short. We didn”t look at an old short, because of two things. Number one, there was continued trending up into the close. That was actually indicated by the pattern. Not the intraday afternoon buyers, but just the end of day. These guys are already satisfied, already fulfilled. The degree to which they were fulfilled says just back into Friday”s cash session. Friday”s cash session close equated to 58.25. That”s essentially where this rally”s momentum, this legs momentum ends. Then, back up 55 signals momentum reversing down. I”m not ready to take that though, because I”d still like to see 63.50 tested, 63.50 being that next resistance after 41.

So, for Sunday night, and this is just for a correction by the way, just the same as Wednesday”s correction from 41.43 back down to 21 plus or minus. All we”re looking for is another correction, and I have several candidates for that. I really don”t want to see 41.43 touched ever again until we get to 84. Until 84 is tested, we really shouldn”t pull back to 41.43. If we do pull back that deeply, since we already have from a fresh high, and that already launched a higher high. If we pull back to 41.43 again, 84 is probably off the table at that point. So, depending on if we get to 63.50 before reversing down and a high 63.50 is probed before reversing down, if we do reverse down, that”s going to help firm up what the actual reaction or retracement would be, but let”s just say it”s precisely 63.50. If it”s precisely 63.50, then we”re looking at about 44, literally as much selling pressure as possible on the reaction down without actually touching 41.30. The higher that 63.50 is probed before reversing down, if 63.50 is even probed, if it even reverses down, the higher the pullback. We wouldn”t have to get down to 44. By the same token, one more thing to point out; if despite this launching pad I just described prior to that segment, how buyers didn”t gain traction for their efforts. Yesterday afternoon, the bias environment was exited within the Noon hour”s range, and the final hour was entered within probe ranges, yet price extended higher.

If regardless of that, regardless of what happened Sunday, Sunday might try to pullback. That will be irrelevant, but if Monday opens up, extends higher, and gets out above 63.50 through the open, we may be foregoing a pullback at all. At that point, if we”re not going to have the opportunity for another pullback or corrective dip, not even a very big one, but just a corrective dip in here instead having come so close to these prior highs…These prior highs are attractions. Once the market gets or returns back into the orbit, there”s a gravitational pull, and these prior highs at 19.64, 19.71, they”re not so much propellants as accelerants. Imagine a rocket ship being slingshot around the moon. It”s the same concept, as far as I know. We would then expect, not just to extend higher without interruption, without correction, but also at a very steep pace up to 84. Can you imagine what”s happening at that point? Not a lot of traction. A lot of enthusiasm and euphoria, and not a lot of ability to absorb a reaction down.

So, that”s where the next opportunity for resuming the decline would come. Get through 84, and of course, then we”re looking for new highs. New highs, really though, in the context of retesting the prior highs. New highs not in the context of a new bull market. Some probing to fresh highs, but just obligatory since there”s got to be some reward for it. Alright, slowly, but surely.

Let”s go look at some other markets, some other indexes, and then move on to stocks. If there”re any questions to any of that, please let me know.

The transcript just arrived this morning, so I haven”t yet been able to proof it. Click here for the recording…

Good morning, and welcome. It is Saturday. It is time for the Saturday review. Thanks for being here. It is gorgeous, gorgeous weather, as far as I can see, across the country, pretty much. I know this is a great sacrifice. Let”s see if we can get some value out of it. So, let”s look at the market.

Let”s start with the market on Friday and work our way backwards and just point out the context. Fridays are interesting animals, and if they aren”t interesting animals, or if they”re interesting animals, it”s because they can be so uninteresting. This Friday was pretty volatile, and thanks to there being such a wide range in the market recently, even a boring Friday session had plenty of room to move. What I mean by boring is, let”s ignore the values of price and just look at price action. Versus the opening print, 1878, to the close, and that”s not even the close that you”re looking at, 1880. The actual cash session equivalent close is 7950. There is no movement between open and close. That”s not atypical for a Friday, and more so for expiration.

There”s one thing that was unusual about it, and we”ll talk about that in a moment, that also creates a context for absorbing the greater view. Just to refer back to the top for Friday. Friday can be very uninteresting, and thanks to there being such a huge range in the market recently, there was plenty of room even for the briefest of moves. This was a move from 75 targeting at least 70, not that anybody could get that even with a limit, but that”s a pretty big move for a few minutes that is predictable. If I saw that pattern on a typical Friday, even though it would say we”re going down next, and that”s the minimum objective, and that percentage of a move versus the distribution that caused it. I wouldn”t even bother mentioning it. I would just monitor it for being done or not because that would confirm the greater pattern, but I wouldn”t bother mentioning it because normally that would amount to maybe 76 or 86 through the open.

We”re getting such huge moves here that I am able to identify a lot of different entries, and they are tremendously profitable. Either they”re tremendously profitable quickly, other than profitable quickly, and then tremendously profitable eventually, or they are quickly invalidated. This wasn”t even a buy signal. In fact, I had a couple of these. Right here didn”t have that action bull.

I just wanted to point out there was nothing accumulative about it, about the pattern longer term. There was no unfinished above, and there was a bearish WedEX indicator telling us that we”re heading down. That was resistance that could have been exploited for a retest of the high, and I had one here as well at the time. I didn”t want to take it. I pointed out that I wouldn”t take it, but that was resistance. When I say resistance, I”m saying these are make or break points for the market. These are very critical points where the pattern that I”m tracking, the pattern that”s being confirmed by little moves or by bigger moves playing out, the pattern that I”m tracking could be disrupted. It could be invalidated or it could be overtaken by another pattern in the reverse direction here or here, and the market doesn”t allow that, or the bearish Wednesday expiration indicator that controls Friday afternoon and Monday morning will allow it. In either case, it”s not allowed.

Sellers remain in control. So, we”re getting these huge moves, that”s point number 1. We”re getting big influences. The Wednesday expiration indicator triggered bearish, and it”s hard not to had the market extended down. Here”s Wednesday. It gapped down, remained under prior lows. The prior two sessions were trended down. There are other bells and whistles that might have invalidated that or came close to invalidating it, but didn”t. That”s a bearish, actively bearish at that, Wednesday expiration indicator, which doesn”t have any say on Thursday. It doesn”t have any say on Friday morning. It”s linked directly to Friday afternoon and Monday morning. Friday is expiration, right? Friday morning is opening rotation for expiration, but nonetheless, the Wednesday expiration indicator”s influence is from these two days. Had Thursday extended down further Thursday and Friday morning, then that would have had potential to invert the Wednesday expiration indicator. The bearishness that it picked up on bigger money, positioning, or posturing, or repositioning, reposturing ahead of expiration, repositioning or reposturing bearishly, might have picked up on cases of suddenly being impacted by something influential that wasn”t necessarily on the radar too recently, may continue reposturing and repositioning. It may not have completed that repositioning on Wednesday, and that may continue playing out Thursday and Friday morning. That means that the bearish Wednesday expiration indicator was only fulfilled so that Friday afternoon comes, and it”s overdone, and it inverts. It didn”t happen this week, this cycle. Thursday, if anything, ranged sideways led to higher biased upward, absorbing dips. Friday morning didn”t happen, gaped up, extended higher. All of that buying pressure. That”s tremendous buying pressure expended momentum, but for the bearish Wednesday expiration indicator to just step in front of and basically retrace. Not reverse, not yet, but that”s all that the bearish Wednesday expiration indicator has to do, is absorb bounces to qualify, and to stop rallies dead in their tracks. It did.

Then one more measurement here. This bounce was retraced considerably. It held at 61.8% retracement, 61.8% retest. That”s why there was potential to rally here. That would have invalidated the Wednesday expiration indicator, which was confirmed by closing back under the 38.2% retracement of this down leg. So, if the Wednesday expiration indicator worked, and this is what”s important to note for Monday. If the Wednesday expiration indicator is in play on Friday afternoon, then it is in play on Monday morning. Expiration lasts into Monday morning. It”s not the expiration itself. It”s the fallout from the expiration, reaction to the expiration. There”s still reposturing because you don”t know until expiration where you settle, so there”s still influences. It”s nothing to do with the contractual option expiration, the handbook that the CBOE hands out. It has to do with the decisions that are made, the influence that expiration had.

Here”s the interesting thing from Monday morning. If the expiration indicator worked or was influential to Friday afternoon, then it will be influential. That”s the rule. It will influence Monday morning as well, and if it was a bearish influence, it will be a bearish influence as well. If it was passively influential, or not necessarily passively, if it just was not a very substantial influence that is not aggressive, then it will be aggressive on Monday morning. It”s not either or. This one is aggressive, the other one isn”t, or this one isn”t aggressive, the other one is. If Friday afternoon”s influence were aggressive, Monday morning”s would be aggressive. If Friday afternoon”s is not aggressive, Monday morning”s will be aggressive or vulnerable to it. So, probably one is going to be aggressive, if not both. One being one of those periods, Friday afternoon and/or Monday morning, and that”s where I am right now. I”m trying to determine whether or not this was aggressive. This was a pretty substantial down move in absolute terms. When afternoon started, we were 1888 and got down to 70, an 18-point move. That”s huge. There used to be weeks that went by without a singular trend of that size. This happened within the space of a couple of hours. That”s tremendous. It was also retraced by 61.8%. Let”s start talking percentages because that”s just a retracement of the morning”s rally, all noise. By my definition, that”s noise. A trend that reverses back to the origin of the previous trend is noise. So, that 18 points is irrelevant when it was 18 points up and even more so from morning low to morning high. That 18 points up, compared to the moves that we”ve been seeing intraday, that”s even more so. That was the prior afternoon. If there”s any window in here, I can see, pretty much, that move or greater. So, it”s not even a big move, percentagewise. So, I”m having trouble calling this aggressive. I”m having trouble confirming that Friday afternoon was an aggressive move. It was retraced 61.8%. It didn”t trend all the way throughout the afternoon. It corrected. The correction didn”t gain traction, so we consider the bounce to have been absorbed. So, we consider the Wednesday expiration indicator to have had a bearish influence. So, if Friday was not the aggressive day, then Monday should be aggressively bearish from the opening print. Is everybody with me on that? Let me know if there”s any questions or if it”s possible that this is so clear to me or so usual to me that I”m leaving out something in the description. So, let me know if there”s any confusion or question or anything that needs to be elaborated on or repeated. So, that”s where we are right now. If Friday afternoon wasn”t aggressive, I”m expecting aggressively down Monday morning. Even if Friday afternoon was aggressive, it”s possible to still be aggressive Monday morning. At least one of those periods should be aggressive, and it”s possible for both. So, even then it”s possible, but it”s almost required if these is not the aggressive day.

Why not be short then? Why not be terribly short into Friday”s close? Because there”s one thing that the Wednesday expiration indicator doesn”t require, and that is the overnight, the difference between Friday”s close and Monday”s open. The difference between Friday”s close and Monday”s open could be zero, open flat, and then a plunge if it”s a plunge. The difference between Friday”s close and Monday”s open could, in fact, gap down already. It could also gap up, and it could gap up considerably. I”m not saying we”re leaving the door open to that, because who knows? The Wednesday expiration indicator”s bearish application to Monday morning versus Friday afternoon has had instances of nevertheless gapping up. It”s what happens after the gap up. So, just to put this into perspective, let”s say we”re in recovery mode. Monday”s open could gap up to 1918, higher prior lows of 1918, and the balance of the morning trends back down to these lower prior highs. That”s a pretty substantial down leg. 1918 to 1891 or 1892, 26 or 27 points. That”s a big morning. Bigger than Friday afternoon. It would have to be, to be more aggressive, but it wouldn”t preclude gapping up, and it would never get profitable. Actually this would be the target area, lower prior highs to the gap. So, we know one thing about the post open action Monday morning. Very likely, wherever the open is, gapping up, gapping down under these lower prior highs, which would have substantially more downside risk, or just opening flat and trending down to these lower prior highs or to the gap back to Thursday”s close. In any case, if we get through the opening 15 minutes of volatility, and the post open action isn”t trending down, then we”re going to have a big question mark, if not an “X,” over Wednesday”s expirations bearish indicator. If the opening 15 minutes of volatility, from whatever open print, hasn”t trended down, then we”ll want to see what the influence is because it”s pretty powerful. It”s overcoming the Wednesday expiration indicator.

If it gaps up on Monday, I would be short immediately. I would be short immediately, if not into the pre-open, really, but with a stop, yeah. That would be the strategy. I”m going to be looking for something. Now, the opening 15 minutes might be something like this, gap up, range a little higher, and then at 9:45, be lower. So, there is a strategy, a low maintenance strategy, but I don”t know how big of an interim swing there is. Then, if that big interim swing doesn”t reverse down, and it turns out the Wednesday expiration indicator isn”t valid. So, the premise, not necessarily the execution, but the premise is coming out of the opening 15 minutes of volatility, the market should be behaving bearishly, and that should be our confirmation that will continue behaving bearishly. The actual execution should be within that list.

Alright. The bigger picture, real quickly, is the end of the week. You know, we talk about trend changes. Here is a trend change signal, a high, a higher high, and interim low broken through a close. That”s on a daily, and those can add up. Now on a weekly, separating major trend moves, we”ve actually confirmed trend change. It”s really tough to be bullish, in that scenario. In other words, it”s very similar to the break under that interim low, fought off once, basically qualified, and then, borderline, was invalidated, which only slowed the reversal down. It didn”t prevent it. Similarly, low close, which I have the trend here, bought off initially, extended down anyway. That”s a pretty big level. We start recovering that prior low. It”s not just significant for it being a prior low that we closed under and recovered, but it”s a prior low that”s had two consecutive lower closes under it and a third lower close to confirm the confirmation. That”s not necessarily bearish. In other words, a breakout confirmed by a second consecutive lower close is due the reward of some future lower close below them. Not necessarily consecutively at that point, and not necessarily limited to one lower close. It could be 100 lower closes, but once there”s at least one, that confirmed breakout is fulfilled, or the minimum requirement is fulfilled. So, to recover after the minimum requirement has been fulfilled, to recover back above that trend reversal, the trend reversal level – I called it a breakout, I should have said trend reversal level – That right there is the minimum that is needed. It could be invalidated the next day, but that”s the signal that this decline is down leg, in its entirety, has ended. Momentum need not reverse up immediately. We could then take advantage of that and consolidate, accumulate back and fill and then watch a rally leg, or it could zoom higher to aggressively be maintained too optimistically. That optimism would be sorely missed just when it”s needed most, but it could trend higher anyway.

So, bigger picture, that”s the bullish resolution. How does that fit, for instance, with gapping on Monday and the bearish Wednesday expiration indicator comes into play? Look at all the selling pressure that would be gotten out of the way. So, gapping up, even if it”s immediately rejected as the bearish Wednesday expiration indicator would suggest, could lead to a very bullish resolution. Meanwhile, There”s this small problem of nothing hinting that that”s going to happen otherwise. That kind of gap up has to happen despite momentum. That kind of reversal has to be a gap up because the pattern”s momentum suggests otherwise. When buyers don”t gain traction for their efforts, and there is an effort, the only way to extend that effort that didn”t gain traction is through the attraction of new sponsorship. That new sponsorship makes itself known not by taking the baton from a standing still position, but actually gapping up.

So, in the bigger picture, this is the daily. This is the S&P 500 cash. So, about a 6-point premium now to futures, just to put this in perspective. These are the prior highs being tested right now as support, trying to recover them so far unsuccessfully, lower prior highs. These are basically from April, this Spring. The prior lows to that range, there are actually pivotal lows in here that have been probed, prior low in that range. It”s not a trend pivotal lows, so it doesn”t have the same requirement to go on and test that actual low, but it”s still a reference point. That”s the support. It”s a pretty thick support range, but the lower prior high, what was the high or a high of the range, not necessarily the actual high, but a pivotal high – were those entirely covered? They were not, so we can”t say that momentum has reversed up. We can”t say that the selling has been absorbed, so meanwhile we”ve got these prior lows. Prior lows are never durable support. When they”re retested, they”re broken. They may influence immediate reaction, but they”re eventually broken in search of a better bottom, even in the strongest of up trends. We have one actual low that optimism avoided touching all together. Here”s a lower prior high that could come into play. When you get through there, we really don”t have a lot of support. This is nominal. You really don”t have a lot of support down there. A lot of this can be retraced if we”re not in cover.

10/11/14 — (recording linked here)

I was doing a little light reading last night, a lot of links out there, getting up to speed. Not just on the technicals. You know, this is a technical and pattern analysis service, technical analysis and trending patterns, but that doesn”t mean that that”s what it”s all about. I”m into technical analysis and patterns because I don”t think that fundamentals are ahead of the game. It is not going to be clear to us, until price gets there, what fundamentals were relevant. So, I apply my energy to identifying patterns and indicator action that is predictive of a price outcome regardless of the input. That doesn”t mean that that”s all that it”s about and that fundamentals aren”t relevant. There”s also in between that sentiment. Fundamentals are what they are. Even if everybody knew what they were at any given time, it doesn”t mean that everybody would share the same opinion. Technicals, turning, that”s all about the mass psychology, but it is fun to read these articles, real time articles depicting from a reporter”s view what we just experienced in real time. You get a good handle on what kind of disconnect or commonalities there may be between our perception and the after-the-fact reporting. Once that kind of a baseline or filter is established, it”s also interesting to then go back to previous major market incidents.

This article that I have up (on-screen) is from the Wall Street Journal, certainly not Wall Street Journal Online at the time, but the Wall Street Journal be printed online, dated October 20, 1987. It”s updated October 20, I bet it was published October 19. I”m sorry it says, the stock market crashed yesterday. October 19 of course is that date that lives in our infamy, Black Monday. We talked about this yesterday tangentially and that was in regards to the Friday prior to Black Monday, October 16, because there”s a lot of similarities in the price action, in the pattern, in the sentiment. Not a perfect analog, but still what we see often enough. This doesn”t necessarily lead to a crash, but is indicative of widespread rush to the exits and a lack of interest or inhibition among buyers. It”s a self-fulfilling prophesy, price dropping, dropping quickly until it”s so low that it dissuades selling because there”s not enough cash to get out of it or shorts because there”s not enough future downside to anticipate so that there can be big bounces. Kind of like we saw this week, huh?

This is the problem, at some point there”s so deep of a drop where normally the ebbs and flows of the market would do exactly what I just described, inhibit sellers because they”re giving up too much to exit. The gain does get back to being worth the candle. Instead we reached a new stage where the falling prices aren”t about evaluation. The falling prices are about fearing for the worst. Almost literally assuming an evaluation of zero and being thankful for the opportunity to get anything above that when you go to sell. We”re certainly there at that stage, that precipice, and that”s the point. The market gets to this precipice, it predicts its own demise all of the time. The more so that we are at that edge, the more so that we feel that the market is about to fall apart, it is because price has been falling apart. It is because nobody is out there counting the market or not giving the higher profile or the seriousness, and so price has been falling. That”s really a bullish case. That”s really a bullish case for, the market does this all the time, and now we”re at the lower end of a range or even probing the lower end of a range. How much better can that be? Almost the cheapest prices since August low, and if it were such a great buying opportunity back in August that lead to such a substantial rally and here”s another chance to get in at August” price, why not? The trend was down then, and it reversed up abruptly. That was considered an oversold, unjust evaluation, so much so that price barely waited to get out of that spiraling downtrend that it had been in at the time. That too was a probe under a prior low, but this one actually isn”t under last week”s prior lows, but not under that last relative low. So, when I can bring this table in that conversation in trying to determine buy or sell, long or short, it”s to point out the price action.

Now, the price action is indicative of at least not a bottom. Specifically, we”ll look at Friday afternoon. What did we talk about Friday morning? Either the market was proving Friday morning that it was still testing the lower end of the range, about to bounce off the same level that isn”t bounced off of last Thursday”s that it had bounced off of Wednesday. Maybe a little lower, which it had to be because there was unfinished business at Wednesday”s low that needed to be probed. That was the low end of the range and that it was going to hold. That was the bullish scenario with that Thursday”s substantial showoff was exacerbated by sellers that would have waited until Friday or would have, normally in their strategies, looked for an exit ahead of the weekend, but accelerated those plans and put more downward pressure on Thursday”s drop. That, of course, attracted more sellers that might have remained on the sidelines. In any case, everybody being careful of the impending 2 days of illiquidity, Saturday and Sunday, if not also with the government bond market closed for the Columbus Day holiday. If the govies aren”t available to lay off risk as a hedge, if they”re not available as the destination and a place of safety as stocks are falling precipitously, then maybe you want to have less of a portfolio needing to be hedged. So, you limit your expose and put more downward pressure on stocks. That was the bullish premise if there was one. That it was artificial, accelerated or, in any case, not fundamentally driven sells retesting the lower end of the range. The lower end or the range as it was tested Thursday afternoon/Friday morning, kept bouncing back to 28-29, 1928-1929, 1930 got up a little bit, and that was the bearish scenario that we were latching onto. Rather than the lower end of the range holding again, but instead a new upper end of the range was forming at 1928-1930 or so.

That upper end of the range, before the week ended, would then start probing the lower end of its range. This is where the bearish premise, where the technical analysis and charting comes into play. The mass psychology, which is people, lemmings, and other herds tend to run in unison or de-turn in unison at times. When they do, the way they do can predict the future or at least tell you what that cause was. If you know the cause, then you know the outcome. This is a panicked sell into a Friday afternoon. Panicked sell sounds like a buying opportunity, right? Buy when there”s blood in the streets unless there”s more to come, unless that hasn”t yet been fully figured out. This is new lows on a multiple downtrend Thursday and Friday, big trading losses first of all looking backward from the close. So, we”re pretty sure that is not the end of the selling. Even if it”s only temporary on Monday, there are substantially lower lows. Are we hours away from a bottom? We”ll know that a few hours after the open. Not because the entirety of the decline will have been recovered, but because by noon there will have been substantial buying pressure from whatever lower level back above whatever higher prior low. We”ll give bulls a very, very big benefit of the doubt and a big pat on the back.

Otherwise, there is this very disturbing Friday afternoon drop. We expected it. We were looking for it because we”ve been viewing this as a very disturbing pattern, and so we expected it to behave in the most disturbing of ways. That is how that was going to happen. If there”s any surprise, it”s how shallow that late sell up was Friday. I anticipated actually duplicating Friday”s decline. That though is also disturbing because it leaves that money on the table to help attract price down Sunday night and Monday. You can see the descending triangle clearly. If there”s anything that should preclude us from expecting a crash at this point, and it”s a big thing, it”s that this is the entirety of this down leg, just a couple three weeks, four. You can go back six weeks and look at the complete formation at the top.

If we want to draw an analog to big, big crashes, of which there are too few to trade reliably with any kind of correlation, we should note that there tends to be much, much more time. Relatively speaking, much, much more time than this. Markets don”t reverse that quickly. In the interest of full disclosure, don”t forget that I had been holding out for this bottom, even the possibility that this bottom would still be able to recover to retest the high before putting in a reversal down. This bottom, number 1, being October 2. This bottom, number 2, being a retest October 8. Either one of those and both of those has the ability to produce a bigger bounce back to the high, neutralize its attraction before getting on with the big down leg that we”ve been expecting. I don”t know, of course, because there are too few instances like this to draw a comparison to. I don”t know if that is still a requirement to retest that high. The characteristics of that requirement is new Globex trend extreme, its gap up above all prior highs. These have yet to be retested intraday, and they should be, but perhaps backs on the ground, perhaps things we haven”t even heard of mainstream yet. We know about the Ebola crisis. Have we heard projections of the economic impact as the world suddenly and quickly starts seriously considering restricting travel? I know the current director of the CDC and the current president are closed to that, but the public is not. What have we seen in crude oil? Does crude oil look like it”s responding to an economic recovery, or does crude oil look like it”s anticipating an economic collapse? It may be a false choice, but if those were the only two choices you had to interpret this price action against the backdrop of the economic reports that have come out during this time. Are you going to believe your lying eyes?

So, maybe things are really changing pretty quickly and a little too quickly to maintain those old rules about a new Globex trend extreme up above needing to be retested, its opening gap up. We are coming into a new Globex trend extreme from August that had yet to be rested requiring a retest. I”m anticipating that to be done now that we”re back in its orbit. As of Thursday afternoon”s retest, I see in the bias environment of the noon hour”s low or the noon hour exit”s low, there was no bullish reason for that. Nothing positive, nothing constructive to a recovery was done in that, and that”s where we got very quickly very bearish. We”d already been bearish. I”d already written at Wednesday”s close. In the market tour, about Wednesday”s rally from the FLMC news that it had originated during a no biased environment, therefore it needed to be retraced entirely. So, we weren”t bullish on that, except that it could have extended higher, and had it extended higher than Wednesday”s FLMC reaction extended higher without delay, it would have been an accident waiting to happen. Or had Wednesday”s FLMC reaction corrected back down to 1933 where the biased up signal of the no biased environment should have contained the price action until it had lapsed, that could have been very bullish too, very constructive had 1933”s retest helped, which it did not.

So, this is not happening in a vacuum. This has been a distributive market. The requirements technically or historically of those characteristics at the high that tend to be retested, that they might not be retested before a more sizeable substantial down leg developed has to be considered. It would come out of Sunday”s or Monday”s open in rally mode. If we get through Monday”s open having gaped down considerably and we”re retracing or recovery back above relevant levels like positive territory at the very least, then we”ll certainly be looking at the potential that the year has reached an extreme and selling pressure as well. We will be prepared to take advantage of that, but I don”t see these news ending anytime soon. Signal Friday morning from 26 that doesn”t violate a bounce on there until 1910. So, signal Friday afternoon under 1919 that we expect to sell off into the close and it does under 1900 Thursday afternoon, 23 points Wednesday afternoon then it was 25 points. Those degrees of news may not be as substantial and may not be as consecutive, but the volatility is not going away.

There”s a question of what do I think about the possibility of high-frequency traders suddenly turning the market around on Monday after it appears to be headed down to burn all the shorts, which is one of the reasons I”m reluctant to get short in what appears to be the absolute right thing to do. That”s exactly the definition of a centurion, a self-conflicted centurion, actually. I wouldn”t be too much on the high-frequency traders coming in to do anything durable. Do they have the wherewithal to step in front of what might be a massive decline at the open, through the morning, and reverse it? I don”t know. I do know that they don”t have a lasting effect, so if they do produce a bounce in the midst of a substantial decline, that is technically entrust wise taking out relevant levels through relevant timing windows, that the bounce they produce would be a gip to sell short because they”re going to move on. The actual underlying fear isn”t going to change just because of an HMT bounce.

Also, our understanding of Monday”s session will be predicated on its open. That”s the first piece of information that we have. The open, of course, is produced overnight. The overnight in the two most bearish scenarios can range silently, shallowly, without volatility, waiting for the US to open, to call the shots, or already begin flinging. Remember Europe”s markets close at 11:30. Apparently, they were putting pressure on the market, and when they went away that”s when the US markets bounced in that completely fake bounce as fake as the open. It was in the afternoon that US markets fell apart, and European and Asian markets have not had any opportunities to follow suit. There”s probably going to be some downward pressure overnight. Whether that”s maintained or this has to be participated in at all by US market, global markets can fall to discount what US markets did after they closed, while Europe”s market is actually firm, and while S&Ps on blowbacks overnight are actually firm. It”s not unusual. Back to your question, the point of that was if overseas markets and S&P sutures are plunging overnight, or falling, or sliding, and the market is opening substantially lower, behind every HMT is a human. Especially after 2010 when the alleged Waddell and Reed algorithm went horribly wrong or was horribly mis-programmed to begin with, and was scapegoated for triggering the last crash. These guys are prepared to go offline and wait for things to settle out. So, it certainly makes sense, since they are participants, to be prepared for them to get involved, but not to plan on it.