Chicagostock Trading

In no particular order, here were the top 5 major market changing trends of 2016 identified by Chicagostock:

1- DOW JONES CUP/HANDLE TARGET 20K

$YM_F Dow C/H Expansion = 20k... All aboard.. $DIA pic.twitter.com/RuhbCGiM6w

— Chicagostock (@Chicagostock) July 10, 2016

Update to Cup/Handle in DOW posted in July projecting 20k. #technicals #stockmarket #dowjones @NYSE @CMEGroup pic.twitter.com/6fJpdvVmxz

— Chicagostock (@Chicagostock) December 15, 2016

The stock market started 2016 weak, however recovered the highs of the year by summer, making a U turn. Those that were caught short, bearish, and wrong, were now forced to reverse position, thus creating the cup/handle formation, giving way to expand the U turn up to 20k.

In December’s article “The Yellen that Stole Christmas”, the point was to show how buyers in the SP500 were caught above 2040, and needed a Yellen rescue.  The market attempted to breakout to start December, however the rug was pulled from underneath as Yellen reiterated a rate hike later in the month.  After bluffing the market for 2 years on this rate cut, the call fell on many deaf ears.  So it was. Buyers were left caught at higher prices, betting on a “Santa Claus Rally” only to be hoping for Yellen to save Christmas.  For the first time in 6 years and exactly 3 years from December 2012’s FOMC that placed a 6.5% target on NFP for a decision on Fed Funds rate, the FOMC reset the market and hiked the Fed Funds rate by a quarter point.  Bulls did not get what they were looking for and saw the market fall back to retest 1982 support.  The level barely held on December 18^th, as the market rallied back for Christmas holiday and the “Santa Claus Rally” was actually a gift from Yellen for stuck longs above 2040 to “breakeven”, or as we like to call it “get out of jail free card”.  

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As the NFP rate creeped toward the Fed's 6.5% target, the bond market acted ahead and as it closed 2013 on the lows, it started 2014 on the lows, only to fail in moving lower and squeeze higher during the month of January. This upside reversal caught shorts by surprise as it squeezed the market from 12723 to 13503 to stop against major resistance from October of 2013.  The reversal into this resistance squeezed out the short side, however for the next 3 months the bond market stabilized sideways to consolidate the reversal and in turn develop a base or in technical terms an inverted head/shoulder pattern from February to April. With April's low retesting March lows and holding, this saw a push back to breach the 3 month highs and confirm the inverted h/s pattern. The coiled pattern once again left shorts selling the market trapped and with the breakout above the 3 month high, this gave fuel to expand this inverted h/s target and squeeze out October 2013 highs. This was done in May, confirming the lows of 2014 as a failed breakdown and a reversal in trend. So far since the October highs being taken out, this has led the bond market to further squeeze another 4 handles as late buyers now come in after the confirmation and chase the market up.  Going forward, major resistance is being tested from June of 2013 in the bond market with new buyers chasing prices above last October's highs. A move through 14028 squeezes this resistance level and retraces the bond market 50% from its 2012 high to its 2014 low. A break below 13606 reverses short term upside momentum to shake out longs chasing the market and give way to test downside support at old resistance 134, followed by 129 as major support off the year lows.

 

 

The Yen also started the year on the lows and reversed higher during the first month of 2014. This caught the market off guard again, squeezing out the short side with the move from 9486-9926.  Since this January upside squeeze, the Yen, as the bond market, went into a sideways consolidation period as it turned lower, however held above the January lows to keep shorts trapped. The consolidation and coiling led to an inverted head/shoulder pattern just as the bond market, with a squeeze in May to break above the neckline of 9870 and reach its 200day moving average for the first time since November of 2013. In contrast to the bond market, the Yen has had much more difficulty in expanding this range and seeing new buyers chase the market at these levels. For now investors are favoring the hedge of stocks into the bond market. Eventually this should rotate from bonds into yen and gold. Short term, the Yen remains in an uptrend with a target of 10150 to expand its 3 month range. Failure to hold the May low gives way to retest the April lows.

Since the December 2012 FOMC statement adding the 6.5% unemployment target to the fed funds rate:

Bonds, Gold, and the Yen (BGY), all front ran the FRB NFP target, moving down heavily for the year 2013, while the SP500 moved up 33%.

 

In 2014, just as the NFP target reached 6.7% to near the 6.5% target, it was pulled.

Year to date for 2014:

Bonds, Gold, and the Yen, working against a major downward trend last year falling an average of 20.3%, all started the year of 2014 on the lows and grinded higher. This reversal for 2014 is counter to the 2013 trend, however is the way of the market completing its front run into 6.5% target.  The SP on other hand, coming off a +33% move in 2013, has held flat for 2014, threading on the highs, fighting to hold its trend versus what bonds/gold/yen are doing.  The SP is also needing to take a lot of juicing at these levels as the FRB chair came out on the 31st of March to reassure investors of continued support, WHILE THE MARKET WAS AT ALL TIME HIGHS! Seems to be the last leg of longs are being lured into the market and we did see since March 31st the market ran 20 handles higher into 189250 only to fall 90 lower.

 

Thus far both of the last 2 NFP reports turned out to be the peak highs of the year and provided great trading opportunities. Join us for next NFP report by subscribing today.

 

Just a little over a year ago, in December of 2012, the Fed for the first time during its low interest rate policy, attatched a 6.5% unemployment rate to its fed funds rate.  As highlighted in December of 2012, this spooked the gold market, which at that time was trading 1655 with a range of 1526-1798 in 2013.  Bonds on the other hand closed the month of December at 148.  Since this new FOMC policy, both gold and the 30 year bond market front ran the unemployment rate target, seeing gold break its 2012 range of 1526-1798 to expand lower, making lows of 1179 in 2013, and lows of 12723 in the 30 year in January.  On January 10th, 2014, the BLS reported an unemployment rate of 6.7%, down 1.2% from Dec of 2012, and only .2% from the Fed's 6.5% threshold.  So with gold and bonds moving ahead of this target, and now the target coming into play, it only makes sense to see gold and bonds recover and turn the other way.

 

 

30 Year bonds put in a failed breakdown early January as the lows from 2013 of 12801 were taken out down to 12723, and failed to hold.  This has thus far led to a reversal and short squeeze, seeing the market recover above 13100.  Overall trend remains down as seen in longer term weekly chart with major resistance for this trend coming within 13320-13524. Breach of this range will change trend and momentum in the 30 year, confirming the weekly double botom and giving room to retest the March 2013 lows at 14014.

Gold's 2012 range of 1526-1798 (272), was expanded (272) lower into 1254.  This did not stop as panic selling came in and gold saw a flush down to 1179 before quickly recovering up to 1434. For the next few week's, gold's downside pressure from its new found downtrend below 1526, forced the market to retest the 1179 lows. Tax selling also put pressure into the end of year 2013 as investors sold gold to lock in losses and balance some of their stock gains.  In January, just as the bond market made a new low, gold also made a new low down to 1181.4, however managed to hold the 2013 low of 1179.4 by $2.  This has thus far led to a small bounce, retesting resistance from the prior high of 1267.5 made in December.  Today gold ran into these highs but has fallen short in taking them out by .5.  A move through the December 1267.5 high confirms a short term double bottom and gives room to retest next major resistance up to 1380s based off the 1434 high in mid 2013 before falling back below 1200.  This 1380-1434 level will be huge for the change in momentum and trend. As a break above this confirms a double bottom and gives way to retrace back up to and retest the 1526 level from where the market failed. 

Just as in December of 2012 with gold at 1655 and 90% of community being bullish after 90% was bearish sub 1000, this did prove correct and we did see a correction down to 1179. So at 1179, down $744 off the highs and unemp rate reaching 6.5%, is this the time to be short gold? Opposite as majority of community is back to being bearish metals, this is the time to start looking back into gold, and picking up physicals.  A flush below 1179 can still be seen, but should provide opportunity for longs as a reversal after the flush would be expected.

 

As seen in the above chart, every move regarding QE was front run by the bond market, with the exception of the 1st QE in 2008 that pumped bonds from 112 to 141. When QE2 was announced the market moved lower, from 135s to 116s. September 2011 "operation twist" was announced, with the market having front ran the news 30 points higher to 147.  This eventually led to a period of consolidation as the market dropped to 136 before running up to new highs of 152 just in time for the announcement of QE3.  Another pullback was seen, down to 140 as the news was sold.  With talks and rumors of tapering QE in 2013, this accelerated the downfall into lows of 128, below its 200day weekly moving average.  In September 2013 the Fed surprised the market by not tapering QE.  This led bonds to unwind and squeeze shorts, reversing from 128-133, back to retesting major resistance at the 200day moving average.  The reversal and squeeze of shorts gives new buyers an area to defend down using the lows below 128 as the exit.  Objective would be to retrace 50% back to 13900. If the bond market did get oversold as it got ahead of itself expecting no tapering, then the retracement seems reasonable, maybe even to front run another meeting of no taper or even increase of purchases.

 

 

 

 

As seen in chart above the 30 year recovered its highs of 13316 from August 27th, rounding out a bottom.  This reversal back through this high was done by the surprise of no taper and shorts being squeezed. Over the past 2 weeks the market traded sideways in attempt to consolidate the reversal and build a base for new buyers to step in.  The longer the market holds above 133 the more of a base it builds and shorts it lures to force a squeeze.  New buyers have to step in to build this base for a breakout to expand the 133-128 range.  This expansion of 128-133 that shorts were squeezed from, gives room for new buyers to target 138-138, also a 50% retracement of the bond market from the May 2013 break down. First downside support seen at 13130 based off 12812 lows. Failure to hold lows shows a failure by buyers to step in with next major support at 12630, 12100.

 

The 30 year bond has consolidated above 14617 in an effort to hold above the year highs after seeing a massive short squeeze that reversed the market from the year lows of 14014. Squeeze was fueled by shorts as the market broke below the February lows on the March NFP release to put in these lows, the market saw a recovery the following Friday going into the "Cyprus bailout".  Cyprus news led to gap above 14200 turning level into a failed breakdown as market continued to force shorts to cover until the year high was taken out. The move caught many off guard and in turn cleared out shorts in the market. By holding above 14617 the market now tries to build a base of support to attract buyers that neglected bonds for stocks earlier in the year.  The market sees major resistance against 14923. Taking the range of 14617-14014, gives way to push toward 15221 high from November.  Just as the Yen tries to target its November gap.   

 

 

 

Yen and SP500 show almost exact contrast comparison.  As Yen tries to double bottom in April, SP500 is trying to double top.  The Yen made lows of 10008 and 10013 before squeezing through 10158 last week.  This level has turned into a new area of support should the double bottom be good. Holding above 10150 gives room to force shorts to cover to give room to take out April 15th's 10383 high with next major level of stops above 10809 from April 2nd highs. Above 10809 confirms double bottom against 100 to give way for a massive short squeeze to target the year highs at 11531 and give room to fill last November's gap at 11790. During the past 4 years the Yen has had a tendency to bottom during the Spring months. 

 

In contrast the SP500 has a small double top as market most recent reversed from 153075 to retest 1593 by making a high of 158825.  As the market hits it's head against this resistance it has managed to hold above 1570 to create a very tight trading range. Move past 1588 is needed to retarget 1593 for stops.  Break of 1570 gives way to test support at 1555 based from the 153075 pivot low.  Taking out this low would confirm the double top to give way to cross the "line in the sand" from the Cyprus lows of 152950 which have held like a rock.  This is line in the sand, just as 108 is the line in the sand in the Yen and 14617 was in bonds.  In contrast to the Yen with the gap at 11790, the SP500 has a gap down to 142575. 

 SP500

Since the gap down two Sunday's ago on the Cyprus news and bouncing off the old highs from February at 1530, the market has gone into a major tug of war whipping short sellers who have tried to come in following the news.  The "plunge protection team" has managed to keep the momentum alive with higher lows.  Just 1 week after that gap down, the squeeze managed to print new highs on the year at 1560.50. Following this new high,  another pullback was seen to retest the prior low of 1535 only to see another higher low develop at 1539.  On Tuesday this led to a recovery that retested and pressed against resistance based off the Sunday high.  This has led to the market climbing back Tuesday night and retesting the 1560.50 level with the market tapping it again, however failing to breach.  Thus far this has led into another pullback, retesting the previous lows of 1539 with lows of 1545.75.  Higher low again as the range tightens and the market builds buy stops above the highs going into the holiday weekend. Sell stops also building below this trend of higher lows and they will be targeted eventually, question will be if momentum can stay alive into the holiday weekend as the range is now 154575-156050.  Resistance met against 1558 with stops above 1560.50.  Support  1548-1539. Bonds as shown below have continued to hold their bid following the Cyprus gap above 14200 and this has led to tap the March highs of 14429.  The squeeze eventually completes on a move past the February high of 14611 to confirm the break below 14200 as a failure.

 

 

Last Sunday's breakdown to 1529.50 on the Cyprus news saw the market bounce off the old February highs of 1530 with lows of 1529.50.  This led to a roller coaster ride for the week as the market climbed back to 1552.50, fell down to 1531.75, squeezed back to 1555.75, fell back to 1535.00, and most recently completed the pattern of higher lows and higher highs by getting up to 1560.50.  This was a calculated attempt to defend those lows and make higher highs to squeeze out small sellers.  The latest high was done this Sunday night (one week after the gap down from 1544-1529.50), stopping out small shorts as the previous year high of 1558.75 was taken out.  The market has thus far rejected this new high and fallen down to where the it opened on Friday.  There is major risk now that this higher high turns into a failed breakout and a double top should buyers failed to defend the most recent pivot low of 1535.00.  Minor support off these lows are seen at 1539, however buyers should find it much harder to hold this trend and the lows of 1535 after new highs were set at 1560.50 which give much more pressure to take out these rising lows and squeeze out buyers.  This would confirm the new highs as a failure a double top with a breach of 1529.50. As discussed in the previous video, the market has been working on creating a head above 1530 for a head/shoulder topping pattern which confirms on a move below 1481.75.  

 

 

 

The bond market showed signs of reliance late last week as the SP500 printed new highs early Friday, yet bonds stabilized to create a base from those lows printed on Thursday at 14024.  Friday's action saw lows of 14105, testing and holding the range from Thursday's lows, and in turn building a right shoulder for an inverted head/shoulder pattern as aggressive buyers were using this as an entry with stops below Thursday's lows.  The move on Friday squeezing through the neckline of 14121 confirmed the inverted head/shoulder and rewarded buyers down to 14105. This range of 14121-14024 gave an upside target of 14223 to complete the expansion of the inverted head/shoulder. As the market held above this neckline on Friday, it consolidated after taking out the 14129 high made on NFP day and in turn this consolidation created a bull flag as seen in the hourly chart, also projecting 14223.  

All of this technical analysis confirmed Sunday night as the bond market opened higher at 14210 and squeezed to complete the target of 14223. The catalyst for this, 'news' out of Cyprus putting a tax on bank deposits.  Price action always precedes news as one cannot predict when news comes out, however they can use price action as the roadmap to guide where they can defend levels and where the market can go.  

 

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 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. 

 

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.

 

 

 Following the squeeze above its weekly resistance dating back from the 2009 highs, the market rallied to 15219 before reversing back to this trendline the market squeezed above.  Failure to hold this level turns this move higher into a failed breakout. Resistance comes in up to 15106 where sellers can look to defend these most recent highs with support at 14818-14622, 14508, 13804-13505.

 The 10 year has reversed off its highs of 135085 and taken out the lows from this high at 133155.  In turn this has broken the rising channel the market has seen from early April.  A weekly close below 133155 is bearish and turns the level to resistance which gives potential for this latest squeeze to 135085 to become a failed breakout.  Support is seen at this resistance trendline from highs dating back in 2008 within 13217-13106, followed by next major support at 129095-127230 from where this market pivoted higher in March. 

Same scenario in the 5 year, a break through resistance from the August 2011-February 2012 highs and a reversal lower to take out the weekly lows off this breakout.  A close below this weekly low of 123285 is bearish and should be used as resistance for sellers looking to defend this breakout.  This turns this breakout into a failed one, with next major support at 123195-123102 followed by 122080-121135 from the March pivot.

 

 

 

 

 

 

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