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Putting aside the small Bull Pennants in the equity indices that may produce small gains for a bit of sideways trading in the weeks ahead, something that started weeks ago in the Russell 2000 and last week in the Dow Jones Industrial Average has begun in the S&P and that is the official reversal of the Operation Twist LTRO rally.
Looking first, though, at the Russell 2000, this index is clearly trading beneath the primary trendline to mark the uptrend associated with that rally and the reason it made sense a few weeks ago to say that a dip below the 50 DMA was probably setting up a future dip, or violent spike, below the 200 DMA.
Now “future” is always a relative term for me with that potential cross unlikely for weeks and months and something that will be foreshadowed by a potential turning down of the 50 DMA with the chart of the Dow below illustrating nicely the breaching of the trendline to mark its own Op Twist LTRO Rally.
Now there is the chance that the Dow’s entire Rising Wedge pattern that carries a target of 10405 will be widened to take the Dow a bit higher than seems plausible, but unusual things happen in these unusual times of extraordinary liquidity, and thus such a possibility should not be ruled out.
Interestingly, it would probably equal little more than sideways trading, consolidation, that will probably set the stage for what is likely to be severe spiking action down to that Rising Wedge’s target at a minimum.
It is the Dow’s drop below the trendline to mark its intermediate-term uptrend that tells us to be on alert for a very bearish move out of the equity indices at some point this year with the finer signals likely to come in due time.
Supporting this sort of drop after the consolidation is now the S&P that is showing a weekly candle for today that is below the trendline marking its Op Twist LTRO Rally.
As can be seen, it was that cross last year that marked the beginning of the end of the QE2 rally last year even though that true end did not come for many months later as the S&P consolidated in vicious sideways trading and something that seems likely this year before the index’s Rising Wedge might try to fulfill its 1075 target.
Not surprisingly such a potential fulfillment is supported by the VIX that is showing a nascent reversal of its intermediate-term downtrend and something that will ultimately happen, most likely, as a result of its Falling Wedge.
More important right now, though, than the VIX’s Falling Wedge is the fact that it is back above the second trendline of what will be many Bull Fan Lines to mark an upcoming reversal of its intermediate-term downtrend. In fact, today’s gap up may provide the placement for the all-important third Bear Fan Line that will act as real confirmation of such a potential reversal but this will require, probably, a brief drop back down and maybe to 16 or so before the VIX might trade for weeks between about 16 and 22.
Putting such possible but somewhat likely nuances aside, the main take away from the weekly chart of the VIX is that it supports the idea that the Op Twist LTRO Rally is starting to reverse and something that may be cemented by some sort of correction later this year.
Can you help answer these questions from other members on NexusFi?
I guess there is quite a bit of index hate today...my spots got cut through like a knife through soft butter....
I missed most of the day but I have interest in 1355.75 on ES if they don't front run it ...for a long up to 1361.75
The TF is a guess on entry but upside target is 787 minimum but would like to see 789 really.
It obviously looks weak but would like to see some kind of pop somewhere so....
It ain't pretty but possible long at 782.7.....do you feel lucky ?
I don't expect to get a trade here because the way it usually plays out on days like this is. That is because of all the previous chop they won't come back for a decent entry and just take off instead.....it's really tough picking through all the weeds.
Edit: Obvoiusly nothing happened at 782.7...just a blip....if we get any kind of bounce somewhere we most likely won't see it coming.....just to negative to get a decent signal though I do see something on ES ...might as well just come back tomorrow
I'm still looking for 789 then if it stays above it (and gets past 792.5) I think I'm ultimately looking for 798.
Refer to my earlier post on some of the down side stuff to keep an eye on.
The ES came up to the 1361.75 I was looking for only it started from a lower spot than I was looking at and just passed on the whole deal after just getting a point off the first try....anyway I'm looking for the TF to hit 787 tonight sometime.
In addition to the spots I already mentioned watch around 792.5....
Hopefully some of these will get a little more respect than the stuff for earlier today but it serves as a good example why you HAVE to get some kind of PA or signal to fire off a trade.
We got 798 so this trade is over ....have to wait for the next setup ...I should mention that I'm now looking to go short probably at about 797 .
It's already set something up overnight so it might not come back but if it does that's where I'll be watching
Now that we busted through the top next up is around 804 (808 after that)......I did try for a long at 793 but missed it by 2 ticks on a retrace....would have been looking for 797 but you know the rest......
