US Indexes Analysis
Anyone who has traded for any length of time will know that it’s one thing having the right idea or view, but it’s something completely else having the structure and situation awareness to know when is the time to implement it. Get your timing wrong and it will lead to a multitude of problems and it’s not just about your profit or loss. Having the right idea but the wrong timing is psychologically destructive and will be compounded if the market then goes in the direction you thought, but you are no longer in that position. It can create a downward spiral in confidence and ability to implement strategies. The problem is most traders and their analysis are reactive which creates emotions and mistakes. It is essential that your support structure is proactive. By that I mean using studies that are predictive so you are prepared for when they tell you to do something.
Trading Safely’s tools are designed to do that, with most of the code or indicators either being based on the opening price so the values are fixed, or referencing higher time frames so the bigger picture is clear and concise. You only need to look at one chart to get the complete synopsis of where any market is.
Since the election stocks and therefore US Indexes, have been on a serious rip and our analysis has gone along with that trend until now. One of our core reference tools is the Range Relativity study. This looks at the limits of range from weekly up to annual levels, with the former being the timing point and indicator of trend. The chart below is of the Dow Jones Futures with the weekly relatively levels marked by black dash’s. As each new week begins it provides the reference points. Since the election, price has never closed below the weekly support point until last week. This tells us that the rally is over and any long positions are no longer allowed. The same has happened on the Index itself as well as the S&P.
Dow Jones Futures
The S&P futures also broke down last week and this morning has already reached this week’s lower weekly based level.
Whilst Range Relativity provides a bullish/ bearish framework for US Indexes, all trends must end by creating support or resistance based on their own momentum. This is achieved via the Energy and Expansion studies that reference daily, weekly and monthly data. For any top to be confirmed or change in trend flagged, what was support must switch to resistance. Returning to the Dow Future the variety of red and pink lines represents energy and expansion points based on daily data. They had all been sitting way below price until the past two weeks when they switched to the top.
The topping process is more prominent in the S&P500. Again daily support became resistance, but more importantly the weekly time frame (black line) also moved to the top. The higher the time frame the more important the shift in momentum.
As mentioned in other postings, calls to action occur when any number of a set of patterns and coding’s appeared at support or resistance. Tuesday saw the Powerful SlammDunk signal appear which also marked the Blow Off Top in Banks. There have been two signals in the past year but the connection between where they occur in relationship to support and resistance is critical. Last week’s signal broke through the nearest supports and created the space for price to fall as the next levels of support are so distant. The previous signal was completely different as it occurred directly into close support. The market did drift lower but was not a call to action.
The Dow has displayed an almost identical picture but with support even move distant. In order to stabilize price will now need to build support based on its own momentum.
So for now, the uptrend is over on US Indexes and with supports so distant the downside risks have suddenly magnified considerably.
Please note this is general advice from Trading Safely for all our clients and has been prepared without taking into account your personal objectives, financial situation or needs. If you do wish to consider acting on our information please contact a licensed financial advisor to discuss the appropriateness of this recommendation for your own personal financial circumstances. Please obtain any relevant product disclosure documents before deciding to invest. Trading derivatives, stocks and CFDs can lead to losses greater than your deposit.