Red Dragon Leo

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Red Dragon Leo

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ES Morning Update May 11th 2016

Posted: 11 May 2016 06:13 AM PDT

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Futures went through the falling trendline of resistance afterhours and has now fell back below it while riding the lower trendline of support in the rising channel.

MACD’s got overbought on the 60 minute and 2 hour chart yesterday and have dropped since then.  The 4 hour and 6 hour have a little more room to go higher but they too are close to overbought.

Looking at all the charts I watch and studying this futures chart we should be on the last move up today before a pullback that will break that rising channel of support.  I’m not confident yet that this pullback will start any big down move as I don’t think it will.  I think it will just be that move down into this Thursday/Friday for the usual low that commonly happens the week prior to the monthly options expiration (next week).  So today we should look for the futures to “try” and make a higher high then yesterday.  I give it 50/50 odds on that as we have a bear flag formed on it now while hanging on to that lower rising trendline in the rising channel.  I think we’ll see it grind up that trendline early today, holding on for dear life, but I think it will break at some point today.

You can see how the MACD’s had a high yesterday around +5 and are currently around the +1 zone, trying to turn back up.  They should make a lower high (maybe +2.5 to +3.0?) and then rollover allowing the futures to breakdown as well.  I’d again look to selling this move up today but not too heavily yet as we’re likely just going to pullback into the end of this week.  Then the bulls will likely make another run back up early next week where I’ll be looking to load the boat with bears.  Today the bulls will buy the early morning dip, and it may go make a slightly higher high?  Don’t know for sure, but it certainly looks like some kind of final 5th wave up with the afterhours pullback being the wave 4 down and the squeeze up yesterday being the wave 3 up (or C wave?).  Regardless of the wave count my technicals say this should be the last wave up before a pullback happens.

How much of a pullback you ask?  Well, I really don’t see much support until that choppy zone from the 9th where it went up and down many times between 2050 and 2060, so that would be my best guess for a target zone of this coming pullback.  After that the bulls should try again but I think that will happen next week.  Everyone seems to be bullish again as I look around the internet, so I’m going against the crowd here.  But that’s just me, stubborn as “Stone Wall Jackson”!

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Red Dragon Leo

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ES Morning Update May 10th 2016

Posted: 10 May 2016 06:08 AM PDT

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Futures are forming a rising channel now.

MACD’s are once again overbought on this 60 minute chart as well as the 2 hour chart.  But the 4 and 6 hour MACD’s are still pointing up.

While the futures are overbought the SPX cash is still oversold on the daily Stochastic and the 60 minute MACD’s, suggesting that there is again going to be another tug-a-war between opposing charts as one wants to go down while the other wants to go up.  This is what I expect to see in early part of the day but later on we could see them align together pointing up.  This assumes we don’t see any big volume today from sellers.  I’d pay close attention to this rising channel as if it breaks the rally could be done.  The horizontal support is around the 2057-2058 level where it broke-through to the upside after-hours yesterday.

You know I’ve mentioned that the monthly options expiration week (next week) is usually bullish, but I’ve also noticed that it’s not the same now due to the weekly options as they are becoming more and more popular reducing that heavy load of all the option players buying the monthly’s.  I don’t have any statistic’s on it but it just feels like over the last year or so that week isn’t as bullish as it used too be.  And of course the Thursday/Friday low the week prior to the monthly options expiration week is also “not as common” as it used too be either.  Today is a perfect example of how that old statistic might be changing.

Continuing on that thought what used too happen in the past would be a top was put in on a Monday or Tuesday and then a drop into that Thursday/Friday low.  Today we see the futures up before the open, so it’s still possible that today we top and then rollover… but it just doesn’t feel like that’s what’s going to happen.  In fact I think we’ll grind up into Thursday or Friday inside of dropping for a low then.  So next week might just be a down week instead of the usual up week.  Or it could drop down early and then rally back up to retest whatever high we get this week, and then start dropping hard the following week.

The point I”m trying to make here is that the high we see this week should be shorted I think as there’s no guarantee that “all is it was” with the bullish week every 3rd Friday of each month like it has been for many, many years.  We should stick to support and resistance as our guide and when we see a major overhead resistance hit with charts all aligning up together as overbought we should let that be our signal to short instead of assuming the following week will be bullish.  Naturally if we break that rising channel today and loss the 2057-2058 horizontal support then the Thursday/Friday low is still on for this week, but my gut tells me they want this higher over the next few days.  If I’m correct today will be choppy early on and then we should push up later in the day.

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Red Dragon Leo

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ES Morning Update May 9th 2016

Posted: 09 May 2016 06:20 AM PDT

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Futures at resistance from a falling trendline and near support from a rising trendline.

MACD’s are overbought on this 60 minute chart and the 2 hour chart.  The 4 hour and 6 hour charts are mixed.

We I examine the futures they clearly look ready to breakdown from that rising trendline of support.  But when I remember that today is Monday, and the day after the “Mothers Day” holiday I have think we’ll see some light volume today and while we could still break that rising trendline I don’t see any big move down starting just yet.  There are other reasons to consider as well.  The VIX futures expire this Wednesday and “they” might keep it range-bound until then so traders don’t make money from some huge spike up.

Then there’s the SPX Cash index that is below 20 on it’s Full Stochastic (Daily Chart), which usually produces a few days of a rally.  It looks similar to the 11/13/2015 bottom on the MACD’s and Full Stochastic… but, I’m NOT expecting a similar rally to follow as it did back then.  On the SPX there is a falling trendline that comes in just a little over 2080 today and should stop the rally “if” it’s hit in the next day or so?  On this Futures chart it’s the top falling trendline that’s at 2076 or so right now.

I want to make this clear when it comes to placing trades (for those in the chatroom or others that use my charts to trade from?) I “WOULD NOT” be going long today, tomorrow or anytime this week.  I fully expect the market to start down very soon and odds are not good for a rally up to that 2080 zone this week.  Charts only “suggest” it “could” happen but we are in a weaker market now then back in November of 2015.  Also, there is a “potential” crash window for late this month of May, which naturally means we MUST start making lower highs and lower lows going into that period.  Therefore the risk of this market rallying up against any short position taken today or tomorrow is about 20 points or so higher, versus 200 points lower into mid-June.  So one must take the correct trade to benefit from this move down and be able to ride out any short lived rally.

We also have the Thursday/Friday low that is common the week before the monthly options expiration, so we should see a low later this week happen.  Then some rally into the 3rd week of May, as it’s usually bullish due to the market makers running it up to make all the “puts” they sold to the bears this week expired worthless next week.  Personally I think that “rally” is having less and less affect now that we have the “weekly” options that expire every Friday.  But nevertheless I have to keep that potential rally in mind.  For today though I’d just look start getting some short positions that you can hold until mid-June when I think we’ll be a whole lot lower.

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Red Dragon Leo

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ES Morning Update May 6th 2016

Posted: 06 May 2016 06:11 AM PDT

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Market still under falling trendline of resistance and horizontal support from an early April trading range.

The MACD’s now have triple positive divergences on them, making higher lows as the market drifts lower.

Generally speaking when the first move off of the employment numbers data release is the wrong direction.  Meaning if it goes down from it then it should turn back up the rest of the day.  If it pops higher from it then it usually fades back down the rest of the day.  Considering how oversold we are on the short term, along with the positive divergences and support zone we are in, I suspect that pattern will repeat and we’ll turn back up today after some early selling pressure dries up.

On a daily close the 2040 SPX zone is a very important level.  Closing below that area today would be very bearish for Monday and all of next week.  Since we all know where this market is going in the month or so it’s just a matter of trying to catch a bounce to short at, which so far we haven’t gotten much to work with.  I’m not interested in buying any dip but only interested in shorting any bounce.  If there’s going to be a bounce today would be a good day to do it, but sometimes they just keep drifting lower day by day not letting the trapped bulls out or the bears on the sidelines in.

So for now I’ll just wait for that bounce before shorting as we are still early in this big move down and shouldn’t be at that point where we just drop hard day after day without any brief rallies back up… but that period is coming, at it will probably be in the 2nd half of May.  Until then I still expect at least a one day rally here really soon.  I’m happy to wait on it.

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ES Morning Update May 5th 2016

Posted: 05 May 2016 06:15 AM PDT

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Futures hit the falling trendline of resistance afterhours and briefly pushed through it (hitting 2060) before falling back to trade sideways riding that trendline.

The MACD’s on this 2 hour have more room to go up but the 60 minute chart is rolling over suggests a pullback in the morning and then a turn back up later on.

Looking at the various time frame on the ES Futures and the SPX Cash we do appear to be close to a short term bottom.  While the 60 minute chart on the futures acts like it’s going to rollover and push the market down the other time frame charts suggest that the market isn’t ready to collapse yet as they want to turn up for a few days or so.  And since we had brief pierce of the falling trendline of resistance afterhours and are currently choppy sideways this suggests the pullback should be small as the market wants to go back up through that trendline again and try to hit the next falling trendline up a little higher.

Patternwise we are making an “Inverted Head And Shoulders” pattern on this 2 hours chart and the smaller timeframe charts as well.  What we might see is the futures drift down some early riding that falling trendline to reset the overbought 60 minute chart and make a slightly deeper “Right Shoulder” for the IH&S pattern.  That would leave the afternoon session and/or Friday for the breakout to the upside to happen.  It would also make an ABC pattern of wave up from yesterday’s low, which the breakout wave would be the C wave up to end the pattern sometime later today or Friday morning.

That is my preferred scenario and the one I see that has the best odds.  However, we still only came close to the 2042 target on the SPX Cash (about 2035 on the ES Futures) and it’s still possible that this first attempt rallying up fails to make an ABC up and just drops at the open and makes another lower low today.  If so, then I’m still going with the same target zones of 2035 on this futures chart and 2042 on the SPX cash.  On the pullback (for either scenario) the first support is the 2045.75 level from the prior low on 4/29 and then of course the “Head” of this IH&S pattern, which was yesterday’s low 2039.00… break that and 2035 is next followed by 2026.

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ES Morning Update May 4th 2016

Posted: 04 May 2016 06:21 AM PDT

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Futures did rally yesterday after a midday low but fail to hold it this morning.  This throws the ABC up pattern out the window.

MACD’s still oversold now and that 2035 support zone looks to be the target for this gap down this morning.

This move down of course changes the wave count.  The market was weak yesterday on the rally up, which was a clue that the count could be wrong and now it’s clear it was.  The other scenario I spoke of was that we might still be in a larger C wave down from the 2094 high on 4/27, which suggests we are in the final 5th wave down inside that C wave down.  I think I posted in the chatroom that 1.618% of the A puts the C wave around that 2035 zone (give or take a few points either way of course).

The move down we are having now just doesn’t seem like the start of anything big yet.  When this bottoms today/tomorrow there should still be another series of wave up… which “could” take us back up to a double top from the 4/20 high of 2100 on the futures and 2111 on the SPX cash.  It should be a lower high but I wouldn’t be shocked at all if they didn’t briefly pierce through it to run the stops of all the bears before rolling over for real.  I can’t say for sure that’s the plan but on the daily chart of the SPX Cash that 2111 makes a nice “Head” with the “Left Shoulder” at the 2075 4/1 high.  I think at this point they are planning on making a right shoulder before they tank it.  How high up they rally is unknown right now.

The overall picture tells me we are still going down to that last FP we got on the SPY but the “when” part is unknown.  I was looking for it to have already started since we hit the upside FP of 210 on the SPY back on 4/20, and that still “could” be the high but they don’t seem ready to just drop it off a cliff yet… hence my speculation of a right shoulder first.  The reason I was expecting us to go down further first was based on a comparison to the 2116 SPX high to the 2019 SPX low back in early November.  That was almost a hundred points down and I thought we’d do something similar here.  But if we stop around the 2035 zone on the futures then we are under 70 points off the high, much less then expected.

On the SPX there is huge support around the 2042 level on a “Daily Close”… meaning that if (when, as it coming… but probably not today) we close below that level we should drop like a rock.  This level is the 320 MA on the Daily chart, and extremely important for the bulls to hold.  So I fully expect a bounce from that zone, which looks like it will be hit today.  Then we should start the ABC rally up I was looking for previously, but it should be a stronger one and last longer.  It will be the move up that creates the right shoulder on the daily chart.  Again, I don’t know how high it’s going but odds favor it lasting all this week and into early next week.

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Red Dragon Leo

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ES Morning Update May 3rd 2016

Posted: 03 May 2016 06:03 AM PDT

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Market is showing signs of weakness as it failed to rally up again on it’s first up thrust to hit the falling trendline.

MACD’s rolling over and “should” turn back up at some point today making a “higher low” then the prior -5 area low.

Yesterday I suggested we’d go up in some kind of ABC pattern to hit or come close to the falling trendline.  I still think that’s possible, even with this morning having a gap down open.  While this could be the start of another big move down, or just an extension of last Thursday/Friday’s C wave down, I think it has one more move up yet to come.

I’m looking for a move down this morning that should NOT break the prior low of 2045.75 last Friday which then should turn back up into Wednesday and/or Thursday for the completion of this ABC up.  At the open I suspect we’ll see some early dip buyers that move it up a few points quickly, then we should go back down retest the premarket lows (currently at 2057.25) to lure in the bears.  It should go lower to take out those “stops” long the futures before the open but again, should NOT take out last Friday’s low.  This is my higher odds forecast.

In the event we take out last weeks’ low then the next support level is around the 2035 area from prior lows back in early April.  That horizontal support zone should hold the fall on the first hit of it.  Also we have a new falling trendline that is in that same 2035 zone (if the market fell today to make new lows).  That’s your downside targets should my primary scenario fail today.  If not, then we should top out on Wednesday or Thusday for the ABC move up that I’m thinking has the highest odds of playing out.

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