Chicagostock Trading

Since the last election in November of 2008, the Nasdaq has risen 182% off the lows of 1017.75 to highs of 2871.75 set just last September.  This 182% increase in 4 years, matches exactly the same amount it rose from 797.50 to 2256.25 within the time period of 2002-2007.  The market corrected after this gain from 2002-2007, falling back to retesting the lows set in 2002.  The test came during the time of the last election in 2008 as the market fell to 1017.75 following the crash of 2008 and found support based off the 2002 lows.  Since this last election and lows, a slow short squeeze and grind higher has taken place, through the 2007 highs and retracing back to where the Nasdaq failed in the dot com era at the 2900 level.  The market fell short of the 2900 level by about 30 points before reversing in October down to 2604.50.  An attempt to test the September high of 2871.75 was seen during the October Non-farm payroll numbers as the Nasdaq rallied to 2840.75 and reversed lower as it failed to move past the September highs. This in turn built a daily head/shoulder corrective pattern that targeted the 2650 level. This small corrective pattern completed in October down as the market fell into its support range of 2650-2600 based off where it broke out to the highs in August.  Going forward, the small corrective pattern is over, however on a longer term picture as we look at the monthly chart, we see this small corrective pattern as a road block going forward.  Based off the longer time frame the September range of 2736-2871.75 now offers a new area of major resistance for the market to work through to regain the upside momentum. Until then, rallies up to this level offer an area for longs to take profits, protect longs, and or short the market.  There is a chance the market fails to test the level as the market is in a downside chase having caught buyers off guard by the reversal and not giving an opportunity to gain on their most recent purchases. Continued pain and chase sees the market falling down to take out the 2433.75 low made in June, to squeeze out these buyers who have been trying to participate in this decline over the last month.  By targeting the June lows, the market squeezes out these buyers and gives opportunity to establish a neckline for a short squeeze to retest the 2736-2871.75 level. This retest of the failure in September gives opportunity for buyers to show their strength by squeezing through and for sellers a level to defend to build a right shoulder for a larger head/shoulders topping pattern based on the monthly chart.  There have been many programs established over the past years to keep the squeeze in equities afloat, the most recent one was the biggest with the Fed coming out with Quantitative Easing without an end date.  This announcement came at the highs and gave the final push in the market up to 2871.75. Thus far it has failed to hold up. Here we are one day before the next election is voted on and the market is in a corrective phase. Regardless of the outcome of the election, we must take caution of October’s reversal as the market is now in sell the rally mode, until a move past the September high is seen.  For buyers and sellers, it is wise to sit on hands as this month of November offers more data to be used. Buyers should await a move down to the June lows to defend, and sellers a test of 2736 to defend.  Ultimately, should the market build this head/shoulder top on the monthly chart, this gives a projection down to the 1900 level to coincide with the August 2011 levels and the 50, 100, and 200day moving averages. During the last 4 years, the stock market (Nasdaq) is up 182%, US government debt per American under 18 is up 53%, the national debt up 52.6% and unemployment has risen from 6.8% to 7.9%.  Looking at these numbers, it appears the past 4 years favored wall street over main street. 

With the SP500 completing its 1441 target coined earlier this early, along with the double bottom made in summer that also targeted this, highs of 1468 were made in September as the short squeeze above the level took the market into this next level of resistance.  The market saw a small pullback off the highs and found support off a small trendline based off the August 2nd pivot lows and through the September 4th lows.  Not quite ready to break down, the market grinded higher to retest the highs made in September.  With the non farm payroll numbers released on October 5th, the market squeezed through 1460, stopping out weak shorts, yet falling short of the 1468 high by 2 handles at 1466 and quickly seeing a rejection during the day.  This rejection continued this week as the market saw this as a failure and a potential to double top.  With the breakdown seen this week that led the market to take out the trendline from the August2-Sep4 lows, this confirmed the double top and now targeted the 1424 pivot lows made on September 26th prior to double topping.  As the market is now working itself through this area of support, next major support comes in at 1410 based off the 1394.50 pivot low made on September 4th, and ultimately sees next major support at 1385 being where the market broke out early August to establish the bullish bias for the second half of the year. This fills the market back to where it broke out during the summer as many coined as a "light volume" rally, and most missed the move higher.  This gives the ultimate level for the market to base out for the year and see if buyers step up at these levels to support the market after squeezing out all these late buyers who have come into the market chasing above 1420.  The 50day moving avearge is being tested here. For this week the bear mission is to close the market below last week's open of 1432.75 to establish a bearish engulfment on the weekly chart to project more weakness going into next week.  Doing so sees first level of resistance at 1427.75, followed by 1451.25 being the lows off the failed 1466 high and the range buyers must work through to regain momentum. 

Last month, the Nasdaq future made a higher high of 2871.75, just before reversing to take out the 2775.25 lows made just before that high. The market made lows of 2762.25 on September 26th. Not ready to break the September lows, the market grinded higher off this late September low into retesting where the market failed from the highs. This retest was touched today on the NFP number with highs of 2840.75. This put the market right into the hands of sellers to defend the failed September high, and looking for a right shoulder to build on this failure.  Thus far the market is trading on its lows and giving these sellers oppurtunity to take a portion off as this is being reversed the same day.  Going forward, buyers must work through this 2840-2872 resistance to squeeze out this head/shoulder pattern attempt and stop sellers.  Sellers must look for a move down to the neckline now of 2762.25 to confirm this pattern and allow for another level to take a layer of shorts off.  Continuation of the pattern is seen should the market continue to see sellers below the neckline which gives a downside target of 2652.75, retracing the market to where it broke out early August. 

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The SP500 completed its 1441 target and squeezed into its next major resistance being 1468, tapping it on the button as buyer exageration and short squeeze above 1441 led the market into this next level. Thus far, the market saw consolidation off 1468 in attempt to build a base down to 1443, however buyers ran out of gas as the market reversed Tuesday as they attempted to test the upper 1450s and fell to take out this 1443.50 level.  This has the market now testing an important support range within 1437-1421 as lows of 1424 were made today, fighting to hold the 1421.50 low made September 11th, being the pivot low prior to the run into 1468.  Below this level comes 1410-1394.50 being the pivot low made on the 4th as the market made a failed breakdown and ran from this into the 1468 level. This level could be the target for this move to squeeze out dip buyers and back and fill into this level.  Should this take place, 1385 comes in as next major support on the downside that we must look for the market to test and attempt to hold to offer oppurtunity to reload. There are many eager buyers who want to come in as the market retraces its FOMC move higher, moving down into where this leg up began at 1394, would certainly hurt these buyers. 

Here is a question... Shouldn't falling oil prices be a positive for the transportation sector?  Looking at the weekly crude oil chart above along with the weekly transportation index fund chart, what do we notice? Both oil and the transports traded exactly the same the past 2 weeks as highlighted in blue.  Crude oil made a high of 100.42, failing to break out and seeing a quick reversal the following week to take out the lows made the prior week.  The transportation index made a high of 9349 and also saw a quick reversal the next week to take out the lows made the prior week. In theory, a weaker oil market should be supportive to the transportation index and the weakness in this sector should not have been as strong. Only we are now living in a QE world and these assets are trading as risk on and risk off.  The weakness and similarities should be noted, as this may be giving a bigger picture of what is going on in the economy, and why the Fed continued with quantitative easing. Going forward, the range from the week these markets made these highs is new resistance needed to breach to move higher.

The Dow Jones Transportation Average Index Fund (IYT) has now cracked 2 month lows and on the verge of testing the year lows set early June at 86.09.  As the equity markets grinded higher in August to complete the Emini SP target of 1420, many investors along with other "personalities" looked to the transports for confirmation of the equity strength. Unfortunately for these 'buyers', the confirmation in transports never came.  The transportation index fund made a high of 93.42 in August just as the Emini SP500 made new highs for the year.  As equities digested this new high and consolidated down to 1395 where a base was built, the transports corrected sharply off their August highs and fell into the summer lows.  This index turned to chase equities as the SP500 base of 1395 was supported to see a squeeze into the 1441 level, the transportation index began to play catch up.  As 1468 highs were made in the SP, the transport fund took out its August highs by 7 cents.  This attempt to breakout failed to hold these prices and breakout of this pennant that has coiled all year.  Once again with the small correction taking place in equities down to 1443.50, IYT fell sharply to take out the pivot low of 88.17 made in September just before it chased the SP higher.  With the break below 88.17, this confirms weakness in this index and the double top made in August-September as the pennant has now been broken to the downside.  Those that were looking for transports for confirmation, not only missed the move up in equities, but should be completely puzzled now of the weakness taking place here.  Going forward, IYT is looking weak. The pennant created all year has seen a break to the downside following the double top at the 9340 level. Rallies up to 90 offer oppurtunity to defend this breakdown and sell with stops above 9350.  This range will need to be taken out for buyers to regain control over this sector. Downside support levels = 83.00, 82.60, 80.84, 80.00.

In our last blog posting we noted how the 30 year bond fell into its "X" markets the spot level as the market fell into 14415 to take out the August lows and test major support based off this neckline along with the trendline deriving from the April 2011 low to the March 2012 lows.  Thus far, we have seen the market fight back off this level as shorts cover and buyers have come in to defend. This in turn has the market "flagging".  Flagging is a term used after a market makes an initial move into important support/resistance levels and takes a breather. In this case, the initial move was down from 15129 as the market failed to breach 15311, in turn putting in a right shoulder. The initial move fell to take out the neckline support of 14503 (august lows), placing the market against major support. Flagging is taking place now as the market is fighting off this level in attempt to test upside levels of where the market broke down from.  Today, the market ran it's open from the FOMC day on 9/13 at 14719 and has backed away.  The back and forth should continue, with next major upside resistance coming in at 14810 for sellers to defend. A breach above 15129 is needed to trap and squeeze shorts to void out this head/shoulder topping attempt and target the 15311 highs. Until then the market is in a bearish mode and sellers should look to retest the neckline.  Breaching the level gives room to expand this range from 15311-14503 being a range of 8'8 to the downside. Subtracting 8'8 from the neckline of 14503 gives a downside target of 136'28 to complete the pattern and place the market against the 2012 reversal level that led into these highs which tests the next major support level.

After putting in a lower low by a tick overnight down to 14415, the 30 year bond covered shorts as buyers came in to defend this neckline currently in jeopardy.  This neckline is in jeopardy due to the failed retest of the 15311 high as the market ran to 15129 and turned lower in turn building a right shoulder.  The currently action being seen now is an attempt to flag off this neckline support of 14416 to retrace into testing where the market failed.  First level comes in at the FOMC lows of 14605, thereafter 14810-15129 being the range of the right shoulder. Retracements into this offer sellers a level to defend as a break through 15129 is needed to squeeze the bear and target the 15311 highs to void out this head/shoulder topping pattern.

As the 30 year has fallen into a major line in the sand, the Emini SP500 has also crossed through its major level of 1441 and topped at 1468.  This 1468 level was tapped to the tee and kept a lid on prices in the short term as the market pierced the top of its daily channel since the 1262 lows made in June.  Currently pullback is being seen to test Friday's lows of 1449.50 as support for buyers to defend and retest the highs above 1460.  Next major resistance comes in at 1481 based off the December 2007 high of 1527.  Downside support is seen within1438-1421, 1410-1395, and 1383-1349.

The 30 year bond market has fallen back down to take out its neckline made from the August lows of 14503. This comes as the market bounced off those levels to retest the June highs only to fall short at 15129 on the first trading day of September. Throughout the month of September, money has been coming out of this market going into the FOMC decision yesterday with lows of 14710.  Following this FOMC decision to continue operation twist along with mortgage back securities, panic selling was seen in the bond market to be the catylst in breaking the August lows.  This move has brought the market down into this major support level to test its neckline.  Smart money that defended the highs in turn creating the right shoulder for this attempt to top have reached an area to cover part of any short positions. Should panic continue and buyers fail to step up to defend this neckline, the head/shoulder pattern completes at 13627 to fill the gap made in April within 13811-14015. Going forward, first level of upside resistance is met at 14605 being the lows from Thursday's FOMC. Thereafter, 14810-15129 is the next range of resistance being the right shoulder buyers must work through to target the highs of 15311 in squeezing out sellers and voiding out the h/s pattern.  Last month's open was 15117 with a close of 15113.  The market opened this month trading 15121, this is setting up to be a bearish engulfment for the month unless the market can manage to push back up to 15113 before the end of the month.

The Emini SP500 front month contract switched to December today, starting the contract 7 points lower then the September contract. Yesterday the September attempted to go after the 1441 level before closing out, only to fall short by .75.  Today with the help from the news out of the FOMC, the front month ES (Dec) finally squeezed out that May 2008 high of 1441 and running through 1450s.  We have talked about this 1441 level being a target all year since the market started the year with a gap higher and ran after 1400s.  After a double bottom in summer at 1262 off the year lows of 1259.75, the market climbed higher to complete this target. The reason why 1441 was so important is this was the high the market reversed from in May of 08 before the crash that came later in the year. So moving past this level further squeezes short sellers and retraces the market to where the breakdown began. If there are any bears left in this market, now is the time to start stalking as all the late comers who missed the move are piling in. At these levels, the market still has room to run higher however we are now neutral equities and allow the market to digest this move and offer the next direction.  Bond market is looking lower so there is late money to flow into equities, allowing for longer term equity bulls to lock in profits into.  Next major upside levels in the market come in at 1468-1481 off the 1527 December high in 2007. Followed by 1556 off the 1586.75 all time high made in 2007. 

The 30 year bond's consolidation above its resistance line from the 2008-2011 highs has seen the market digest within a range of 14503-15311.  The high of 15311 was made in July after an initial high of 15219 in June.  This June high saw the market pulldown to retest its resistance line turning into support. This led to the higher high in July squeezing out early shorts as the market ran into 15311.  Prices were not able to hold above the old June highs and the move above this level turned into a failed breakout as the market reversed lower in August to take out the June lows and fall down to 14503 which retested where the market broke out in May.  Since this low, the market has seen a short covering rally bringing the market back to retest the breakdown off July's highs.  The retest has since fallen short with highs of 15129 put in on the first day of trading in September.  Since this high the market has backed away and retraced down to 14817 which is now retesting the prior week lows of 14810.  This is an attempt to build a right shoulder out of a head/shoulder pattern as the market retested that failed July breakout.  Aggressive bears have already faded the move, however the bear needs a close below 14810 this week to see continue the momentum.  The target for the move is to retest the August lows of 14503 being the neckline.  This brings the market back to where it bounced in August from its old resistance line that turned into support. Should this take place, the bear will have better oppurtunity to take out these lows and fall back below this line since the market saw a squeeze in August to test the July highs in turn building a right shoulder.  X marks the spot as seen in the daily chart above.  The range of 14503-15311 gives a downside target of 13627. Completing this downside target retests where the market reversed in March within 13805-13505 as then next major downside support.  A move past the september highs needs to be seen to trap shorts and target the July high for a short squeeze. 

The Euro today rallied into highs of 12808, taking out the June high of 12759 and completing the inverted head/shoulder target of 12775 from the 12413 neckline made on the "draghi sale" when the market fell to retest the July lows. The buys at 12147 saw most covered before the break of the neckline.  As the market took out the neckline of 12413 runners were left to see if the Euro can complete its 12775 target. With this complete, this trade is now done. Going forward, new support comes within 12626-12503.  Next major upside resistance is met against 13082 to fill the gap from the May highs of 13287 of where the Euro failed.  

Reference: Euro's Inverted Head/Shoulder

It was no easy task for silver bulls this summer as the market tested the patience and strength of silver bulls.  The market fell to test its support of 2600 through summer with a low in June of 2610, never breaching 26000. This made bulls sweat bullets as a break below this would squeeze out longs.  A very tight trading range off these lows up to 28445 was created as the market found buyers to step up and defend the June lows, putting pressure against the top of the range which finally gave way for the market to break above going into the December futures contract.  The short squeeze has reward summer buyers  by reaching its first target of 32 off 29 being a gain of $3 which was the original risk down to 26. Going forward, major resistance is met against 3385-3758 being the range of where the market reversed in March of this year.  The second target comes in at 35, however a break above this range at 3758 is needed to trigger a longer term short squeeze and attract more buyers to target last summer’s highs of  44275. New minor support is met at 3100-30265, thereafter, 29500-28500 offers next major support based on the top of the trading range during summer of 2012.  

Since completing the 1422 target with highs of 1424.75, the SP500 has been in profit taking mode.  This action has led the market back down to test the top of its channel that was broken on the 3rd of August. Shaking of the tree is being seen as the market looks for support.  1385 is the next major support level, also coinciding with a 23.6% retracement of the 1262-1424.75 move.  This is where buyers must look to hold to show they are still in control and attempt the next leg up into 1441.  Stops below 1349.

Today the SP500 completed its target of 1422 by the bullish patterns created during the months of May - June.  The year lows of 1259.75 held in June with lows of 1262.00 as the market double bottomed to keep the gap from last year downt o 1252.50 open, keeping the bullish momentum alive.  The market consolidated against these lows and created an inverted head/shoulder pattern with a 1342 neckline, targeting 1422.  An attempt to breakout was seen early July before the market went into another consolidation phase, creating a cup/handle pattern and retesting the 1320-1297 right shoulder.  This created another double bottom against 1420 in July and the market rallied into its upside resistance of 1385.  During the month of August the market squeezed above 1385 and held above to keep shorts trapped which led to a slow chipping away at the May highs of 1411.75.  Which this hold above 1385, shorts were forced to squeeze out, leading to this high of 1411.75 being taken out and finally giving room to take out the year high of 1419.75 and complete the target of 1422 from the 1342-1262 inverted head/shoulder.  Today as the market completed this, instant profit taking was seen as the market reversed down to 1408.  At this point a shakeout can be seen to test downside support down to 1383 with major stops below 1349. Breaking below this low derails the upside momentum to see further downside.  Going forward, as the market looks for downside support and longs who have riden this over the past few months take profits, the late comers and shorts can give the fuel for the extra 20 points to complete the final squeeze of 1441 being the May 08 highs. This completes the short squeeze from the 665.75 lows put in 2009. A squeeze of 1441 can then give room to look for a correction in the market, however will need to see if the market can stabalize or fails following the move.

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As seen in the weekly chart above, the 30 year bond has fallen back beneath its long term resistance from the January 09 to the September 11 highs.  The market attempted to hold above however overbought conditions with the new high in July at 15311, the bond did it's best to squeeze as many sellers as possible. Since this high, the market has rolled back beneath its resistance trendline, failing to hold prices above 14900.  The move has brought the market back down to where it broke out May of this year, just as the SP500 clipped the May highs of 1411.75. Stabalization can be seen here, however rallies up to 14900 offer sellers an area to defend with stops above 15311 to look for these recent lows to be retargeted, followed by a test of the year lows at 13505.

Since the Japanese Yen completed its downside target of 11900 in March of this year, the market grinded back higher, squeezing late sellers, leading to a retest of the year highs and late last year highs.  Over the past several months as the Yen rallied up to 12881, the market stalled and has begun to roll over.  Aggressive sellers have already taken advantage of this move by fading the highs and covering most positions. However looking at the weekly picture, this retest of last years highs appears to be a potential right shoulder of a larger head/shoulder formation.  There is a double bottom at 12416 where a breach of can confirm this right shoulder and see sellers attempt to drive the market down to retest the neckline of 11900 that the market bounced from earlier this year. At that time it was not ready to take out its support of 119-117, thus the short squeeze into retesting the highs. This is the target on the downside with a break below targeting 11375 which retraces the market back to where it broke out during the flash crash of 2010.