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About reddragonleo

I'm a stock market trader and blogger. My website is http://www.reddragonleo.com

Red Dragon Leo

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Red Dragon Leo

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ES Morning Update May 20th 2016

Posted: 20 May 2016 06:16 AM PDT

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Futures are at the shorter falling trendline of resistance and if they breakthrough it they should go to the upper falling trendline around 2057.50

The MACD’s on the 60 minute and 2 hour charts are overbought, but the 4 and 6 hour MACD’s have more room to go on the upside.

Yesterday I thought we’d only make a slightly lower low and then rally.  I was wrong as we went deeper then I thought breaking my 2030-2035 zone of support and hit a low of 2022 before staging a late day rally back into the support zone.  However, I still stick by my forecast that over the next 4-6 trading days (estimate on time) we pierce above the 2080 prior high on 5/10 (2084 SPX).  I believe the plan in motion here is the resemble a previous pattern last year.  I’ve expanded my “possible patterns” to include the August 2015 period too, so here’s that thinking.

As an alternate to yesterday’s comparison of the 12/18/2015 date, and final run up into 12/29/2015 before the big January drop… we’ll study the August 2015 period too.  Ok, from the looks of yesterday’s long bottoming tail on the daily chart we could either be at the 8/7/2015 date or the 8/12/2015 date.  On 8/7 we had a bottoming tail close followed by a very powerful rally the next day.  It closed near the highs and rolled back over the next day.  When I look at this months’ charts I see that we’ve had two similar days, on 5/10/2016 and 5/17/2016.  The one on 5/10 was actually a 3 day rally and could be similar to 7/27/2015-7/31/2015, whereas the 5/17 recent rally looks more like the 8/10/2015 move.  This suggests yesterday was like 8/7/2015 and today should rally hard like 8/10/2015.

Now let’s examine the 8/12/2015 low and compare it to yesterday.  It too had a long bottoming tail and closed green instead of red, but the next day it rallied up, went back down into negative territory and closed the day slightly red.  If that were to repeat today we’d see rally near the open, a pullback below the open, and then a slightly green close… which is similar to 8/12, just flip-flopped a little.  After that we’d see a 2 day strong rally into the prior top on 5/10/2016, with a top next Wednesday 5/25/2016.  That top might be slightly lower/higher the 5/25, but it should be close.  If that happens then our big drop should start right after that and continue into mid-late June, with the next FOMC meeting being the likely low.  If the prior happens then we might not top until June 1st-3rd, and then drop hard.

On the short term today we are right into a necktie of resistance from a falling trendline and a rising one.  This 60 minute chart of the futures shows a lot of sideways chop in that area from the close yesterday, which makes a bull flag.  Considering how oversold we are on the short term there’s a good chance it will breakout to the upside by the close today.  If so, I’d look for the next resistance at the upper falling trendline coming in around 2057.50 on this chart.  I doubt if we see much downside but if we do the obvious support now is the 2022.00 low from yesterday.  My thoughts are that we either chop sideways all day holding this level of support now, or bust up through this area and make a run for the next resistance level.

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Red Dragon Leo

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Red Dragon Leo

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ES Morning Update May 19th 2016

Posted: 19 May 2016 06:30 AM PDT

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Futures are still holding the important support zone from 2030-2035 and also seem to be in a falling wedge

MACD’s on this 2 hour chart are oversold and are trying to turn back up.  The same thing is forming on the other time frames too.

The market is at a critical point right now as everyone now see’s the larger Head and Shoulders pattern on the daily chart of the SPX Cash and the ES Futures… as well as many other indexes.  One has to wonder when everyone else see’s the same thing as to whether it will be allowed to happen or not?  My answer to that is of course… No!  At least it won’t happen when everyone is watching, but it will still happen.  It’s just that everyone needs to stop focusing on that pattern and turn bullish thinking the pattern failed… and then it will happen.

What am I talking about you ask?  Late in the day yesterday I got the feeling that this was just too easy.  The all important neckline on that H&S pattern for the SPX cash is around 2040 and it’s looking ready to break, and Janet Yellen speaks on possible negative interest rates on the same day we are testing that support.  The wave structure looks like we are setting up for a big drop, like a wave 3 down or C wave.  Everything is perfect… but everyone else see’s it too.  That bugged me!  The market rarely lets the retail sheep on-board the bear train when it leaves the station.  In fact I can’t recall anytime where everyone was so bearish that the market started the big move down.  In every case I can remember the bears are late to the party chasing the move down after it’s half way over with.  So I went back to my charts and here’s what I think is going to happen…

First, when I look at the various charts it looks like we are short term oversold.  The slow move down over the last month has put the daily chart in an area where it should have a multi-day rally before rolling back down again.  In fact, I think we are about to go up into next week to get everyone bullish again thinking the head and shoulders pattern failed.  Today I think we’ll find a bottom and hold the 2040 SPX level by the close, (the 2030-2035 zone on the ES Futures).  Then over the next several days into next week I think we are going to repeat the pattern that played out back in December of 2015.

Basically, I think we are going to take out all the bears that are short from the 2080 high (2084.87 on the SPX) back on 5/10 just like we did on 12/29/2015.  However, I don’t think we’ll take out the 2111 SPX high (2105 on the futures) from 4/20, but stop somewhere in-between those levels.  That means we are kinda where the market was on 12/18/2015 just before a squeeze higher to take out those that shorted on 12/16/2015.  I know this is a bold call but everything I look at tells me everyone is too bearish right now… therefore I have to think the opposite will happen of what all those sheep think will happen.  If I’m wrong and we lose the support zone today by the close then we should drop hard over the coming few days to the 1970-1990 zone.  I’m not perfect on my forecasts…. no one is.  So do your own analysis as well please.  We are still very bearish on the big picture as I’m expecting a mid-late June low in the 1850 SPX area, meaning this is just a counter trend forecast and one I won’t be playing on the long side as I’d rather wait for the short.

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Red Dragon Leo

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Red Dragon Leo

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ES Morning Update May 18th 2016

Posted: 18 May 2016 06:23 AM PDT

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Critical support zone looks to be tested again today in the 2030-2035 area on this 60 minute chart of the ES Futures.

The MACD’s are too weak to get much going to the upside it seems as the longer time frames are still very bearish.

Yesterday I thought we’d go down early on and hit the 205.88 SPY FP and then later in the day float back up some.  We did hit that print area and tried to turn back up, but by around noon EST the bulls couldn’t get anything going and we dropped again into the close hitting and going past the other FP of 204.7878, which shows us how weak the market really is.  I also give low odds that we’d rally up to the 2080 area again before tanking and those odds are still low as we can see the futures are current down this morning and we are half way through the week now.

Since I believe the later half of the week is going to be the tipping point where the 2040 SPX major support zone is broken it now seems even more likely that the 2080 prior high last week was all she wrote for the bulls.  They also closed out the SPX at 2066.66 giving all the insiders the coded message that the 2080 high was the last important top before a big fall.  Today we should bounce once we hit that support zone again but now the upper falling trendline of resistance is lower and only around 2062.50 on this futures chart.

Since it’s rare to see a Wednesday put in a low for the week odds are 93% they’ll be a lower low before this week ends.  Possibly we chop around up to that upper falling trendline by Thursday or Friday and then rollover again to come back down and retest this horizontal support zone in the 2030-2035 area… only on that next hit I think it breaks.  Today feels a little too early to break, but it’s coming and likely this week.  So again, I’d look to short any bounces with the idea of being able to hold until the expected mid-late June low is here in the 1850 SPX area.

This test again of the support zone is 2nd time recently and 5th time going back to April 7th, April, 11th, and May 6th area… so you know it’s important.  If it holds on this hit then there is upside resistance around 2050 from the shorter falling trendline and of course 2062.50 from the upper falling trendline.  A possible move up into those trendlines by Thursday or Friday would be the next greatest shorting opportunity, as it looks like we are about to start some kind of wave 3 or C down, which should take us to 198-200 on the SPY.

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Red Dragon Leo

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Red Dragon Leo

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ES Morning Update May 17th 2016

Posted: 17 May 2016 06:14 AM PDT

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[08:00 AM] Futures pierced through the upper falling trendline of resistance overnight but failed to hold and is now back at horizontal support.

MACD’s are pointing down on this 60 minute chart and the 2, 4, and 6 hour looks ready to roll back down as well.

Today is starting out bearish on all time frame I look at as the futures are stuck between the upper falling trendline of resistance and the horizontal support line.  Looks like we’ll have an early morning pullback, or at least that’s what the futures want to do.  I don’t see anything bullish early on, but “possibly” they could turn the MACD’s back up later in the afternoon on this 60 minute chart to make a lower high on them and breakout of the upper falling trendline of resistance to make a higher high then then the afterhours high.  Odds just aren’t good for that happening right now though, as the charts look bearish on multiple time frames and that includes the SPX cash charts as well.

However, it “feels” like they want it higher.  The volume is very, very light and while the charts are bearish the lack of selling pressure might allow the bulls hold the support zone until they reset the bearish chart back to short term bullish.  This just looks to me like the big boys (the institutions) selling into the light volume run ups.  They sell a little bit on each rally from the retail traders.  At some point soon they are going to run out of retail traders to rally it up a litte and the big boys are just going to hit the sell button hard.  This could (should) start late this week, but since it’s option expiration week they “may” hold off until next week?

[08:40 AM] The futures broke the horizontal support before I could finish this update.  I suspect we’ll see early selling from the big boys (not too heavy as they don’t want the lower support levels to breakdown yet) and then another light volume float higher (small) later in the day.  This again is very bearish and traders should be get short positions on each rally as they don’t seem to be able to last more then one day due to the larger picture being so bearish.  It’s very common to have this choppy action right before a big move (in this case… to the downside).  There’s a 205.88 SPY “possible” FP on my “Think or Swim” platform and 204.7878 on my Prophet Charts platform.  My thoughts are that the 205.88 is the accurate one as the other print is too close to Friday’s close.

Back on 05/11/2016 (an “eleven” day) we saw a FP on the SPY of 208.50 and we saw a FP show up several times last week on Apple of 101 something.  Now I don’t see anything in the charts to suggest that we are going up there… in fact I give those FP’s both low odds of happening.  But “if” and that’s a BIG “IF” there is some sudden big gap up and rally late this week look for those targets to short at as that would very likely be the end of and rally up in this choppy daily action.  We all know how SkyNet likes to wipeout the bears by hitting all their stops just before rolling over and tanking, so while that looks unlikely to happen today, the charts could be realigned “short term” bullish enough later in the week to allow that rally… especially if the big boys don’t sell hard.

Back to this futures chart.  It looks like we had 5 waves up into the 2069.50 high at 3:00 AM in the morning.  Those 5 waves might be a larger A wave up with the larger B wave down today.  This larger B wave down should have 3 smaller waves in it too (abc), so an early bounce back up for the smaller b and then the smaller c down to finish the larger B wave down could be the plan today.  Then later in the week some made up good news to give us the final larger C up to wipe out the bears and hit the FP on the SPY (maybe Apple too?) and tag the 2080 area on this futures chart just might happen.  For today guys I’ll look for a bottom after the first couple of hours of trading as the selling pressure should dry up by then, allowing the short term charts to get oversold and therefore float back up.

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Red Dragon Leo

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Red Dragon Leo

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ES Morning Update May 16th 2016

Posted: 16 May 2016 06:38 AM PDT

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Weak looking rally off the lows last week, and 60 minute MACD’s ready to rollover at the open.

Good Monday Morning everyone… it looks like we’ll start off this week with some early weakness but I still think they’ll be one more rally later this week to short at.  While looking around at the various time frame charts on the SPX Cash, Transports, Russell, Nasdaq, etc… they all look like they aren’t bottomed yet on the short term.  Meaning their various MACD’s haven’t turned back up yet.  Their Stochastic’s are buried and that implies that it will be hard to have a big drop as they need to come up from that “below 20” level some to maybe the 50 level or so, and then roll back down to have a nice flush down.

Looking on this 60 minute chart of the ES Futures I suspect today will be another light volume day where the futures struggle to hold the falling trendline it’s resting on now, which points to around 2038.00 or so by the end of the day.  The SPX cash is want I see that wants to continue lower but the futures here look like they want to hold the right shoulder of the “Inverted Head and Shoulders” pattern that’s currently formed.  If we drift down to day I’d look for support at the retest of the right shoulder low of 2035.00 and then the head test at 2033.75 or so.

On the upside there’s resistance in the 2060 zone from the horizontal trendlines.  I could see that upper falling trendline of resistance falling from it’s current “end of the day” level of 2065.00 into that horizontal zone on Tuesday at some point.  I don’t feel we are going up much today but that would be my next big shorting zone if it makes it?  While this 60 minute MACD is trying to continue up it’s going to fight the SPX Cash at the open.  The 6 hour, 4 hour and 2 hour MACD’s on the futures also want to go up, but again the SPX cash still looks like it wants more down.  This suggests a choppy day with no clear direction.  Give me a nice 15 or point rally and I’ll just grab a short as I know where we’re going into mid-late June.

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Red Dragon Leo

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ES Morning Update May 13th 2016

Posted: 13 May 2016 06:20 AM PDT

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Futures continued down afterhours but looks close to a low.

MACD’s are trying to come back up but might need all morning to consolidate first.

[8:00 am EST Update:] From yesterday’s high at the open around 2070 it looks like we did indeed have that C wave down, and it may or may not be finished at the open.  I think the way to play the open this morning is to wait for awhile to see if sellers come in and push the market down during the first few hours to retest the overnight low… which as you can see made a 2nd hit on that falling trendline perfectly and bounced back up from it.  If we go down again that trendline points to around 2045 early on and 2042.50 by the close.

My thoughts are that we’ll see some early fighting between the bulls and bears as the bulls try to start the rally at the open while the bears try to push it back down.  On a weekly close it’s critical to save the 2040 area on the SPX (about 2032-2035 on the futures), so keep that in mind as I don’t see that breaking down this week.  I think what’s going to happen is that we’ll see a late day rally to pin the SPY at some level to make all the weekly puts expire worthless.

The ideal spot to take a long (short term day trade only, as I firmly believe the trend is changing to bearish from bullish over the last two months) would be a retest of that falling trendline, and time-wise it would be perfect if it hit between around noon and 2pm EST, as then there wouldn’t be too much time left before the late day rally happens (assuming it happens?… again, this is a risky “intraday” call only, which I don’t trade myself).

Ok, from the look and feel of the futures I’d expect a rally near the open and then back down to shake out the longs… then back up later in the day to shake out the shorts.  That 208.50 FP on the SPY from yesterday still could be in play, but I don’t give much attention to those small intraday prints as many times they are just late fills.  Therefore I would NOT trade off of it as there aren’t consistent enough like the big FP’s that so far have hit 5 out of 5 times.  For the longer term players you know I’m a bear here and just look to short rallies until mid-June for my expected 12% correction.


 

[8:30 am EST Update:] Futures just took off to the upside from the Retail Sales Number beating expectations (after I wrote the rest of this post).  This is a short if it rallies up to that higher falling trendline in the 2067.50-2070.00 area, but only for those with enough time to hold until the mid-June low.  Day traders could get squeeze right through that trendline and on up to the 2080 prior high a few days ago.  Multiday swing traders can ride out that brief spike higher.

A rally up to that falling trendline should use up a lot of the bulls momentum that they should be saving for the close today… not good in my opinion.  It sets them up for selloff into the close.  So the bulls really need to drop early here and retest those premarket lows into the noon to 2pm period so they can rally into the close.  An early rally up toward that higher falling resistance into that same period suggests we could see a late day selloff instead of a rally.  A flip of what I originally expected.

Bottomline here today… it’s looks tricky.  So I’m sticking with selling rallies up at resistance levels giving myself enough time to let them play out into my mid-June low.

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Red Dragon Leo

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ES Morning Update May 12th 2016

Posted: 12 May 2016 06:02 AM PDT

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Futures back up to resistance again after selling off from it yesterday.

MACD’s didn’t turn back up early yesterday as I suggested they might but instead the drop them (and the futures) all day to get them more oversold so they could turn them back up today.

On the SPY “think or swim” charts I see a possible FP showing 208.50 as the high.  It showed up after the close yesterday and this morning we can see that the futures are up as well as the SPY before the open.  Basically that’s a double top from the 5/10 high, or around 2080 on this futures chart.  So if we bust on through this falling trendline of resistance where the futures are stopped at now then we should expect that double top to be hit.  You’ll have to watch both the SPY and the futures as it’s possible that they could take the SPY up to hit it’s FP but not the futures (rare, but possible).  Either way, what them both.

This move up could simply be just a B wave up (if it doesn’t make a new high) with the A wave down yesterday.  If that’s what happens I’d again look to short that double top as a C wave down should be next.  You’ll have to watch closely though to make sure they don’t push up past the double top as then they could get a nice bear squeeze happening.  I’d wait to see some weakness and let it rollover first.  Since the early morning and the late afternoon sessions have the most volume in them, from both buyers and sellers, I’d pay close attention to the noon time period where the bulls should have the least amount of sellers.  If they can’t push through the double top during that light volume period then odds are good they will rollover and start a C wave down.

I’d also watch IWM and the QQQ’s for clues of weakness or strength.  The DOW too I guess.  By the way, the move down yesterday made the right shoulder of the Inverted Head and Shoulders pattern I suggested might form several days back.  From the head to the neckline (2030-2080) it’s about 50 points, so you add that to the neckline and you get an upside target of 2130… which again I don’t think will happen.  I think it will fail today and we’ll rollover and start that C wave down trapping the bulls looking at that IH&S pattern with that target in mind.  Simply put, I’m a seller of rallies until a real breakout over 2080 happens.  If it does then I’ll bailout of my shorts.

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