Daily chart of the S&P 500 E-Mini futures contract on July 17

Anti-Signal: Is There Any Juice Below Today’s S&P Bear Break?

Today’s bear bar seems very muscular without considering the context; large size with a failed breakout attempt on the top and a close near the low of the day. Bear reversals tend to succeed in bear trends when they reverse a weak bull leg against the resuming bear trend. This is absolutely not the case here. Check the featured chart which is just about the opposite; in fact, one after another bearish reversal attempts have failed to gain traction to the downside.

Daily chart of the S&P 500 E-Mini futures contract on July 17

What should we do with these signals if the larger context isn’t bearish then?

In this case the E-mini S&P500 entered a trading range on the 4th of July. It formed a range as it was unable to break to a new high after completing the initial leg down. Then, a 1% large bear trend bar developed today from the top of the range down to the bottom of it. Throughout the years I have spotted an interesting phenomenon:  the harder the price bangs the borderline of a range the more likely it is going to fail to break through. So, just watch it before you get too excited.

“The harder the price bangs the borderline of a range the more likely it is going to fail to break through.”

All I want to say is that we had a weak bear reversal bar yesterday followed by a beautiful entry bar today, but short term we may have already seen most of the bearish action, if not its entirety. It was nice to take advantage of the clear bear trend day on the intraday timeframe, but there is no way that I would stay short overnight considering the bullish context on the left side of the chart. It is too much risk to take for the potential reward.

These are just one or two sharp down bars, but they are still proportional pullbacks in a sustainable bull trend. Either we might take them against the trend or not, but we should never lose the sight of the existing bull trend. I love to go against first bear attempts from a new high or equal high. I wait until

  1. the bears commit themselves against the sustainable bull trend with a large bear trend bar
  2. and the new smaller time frame trend starts to fail hence the lack of larger timeframe coordination.

When that happens, I take the bullish side of the trade (i.e. the context overwrites the short term logic of the most recent bars). Anti-signal trade is the terminology I use for this type of setup.

The time zone we reference on our charts is Pacific Standard Time. Therefore, the U.S. cash market opens at 6:30 AM PST and closes at 1:00 PM PST.

About Laszlo Nagyferenczi

Laszlo Nagyferenczi is a day trader, analyst and instructor as well as the creator of the proprietary Context-Momentum-Signal concept. He has authored over 200 blog articles about his unique approach to trading and the Elliott Wave Theory. His clients appreciate his ability to go from the theoretical to the practical i.e. all the way to the actual trade set ups. Originally hailing from Hungary, Laszlo is fluent in English and Hungarian with a long list of education credentials including BA in Economics, Certified Elliott Wave Analyst (CEWA), Certified Adult Educator for T-Groups, Professional Co-Active Coach (PCC) at CTI. The real education, though, has been the trial by fire in the markets, with real capital at risk.

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