The SPX is like a balancing rock - rolling nowhere

Into Laszlo’s Trading Room: S&P500 Tipping Point

Maybe traders have heard my trading advice along the lines, don’t take a momentum entry following an elongated range market. I say that because prices did “drag to new highs lacking any enthusiastic follow through.” This market is not for the faint of heart of trend traders for a good reason. The tight way the weekly candlesticks align does not support a breakout to the upside nor to the abyss. We have a trend that has moved sideways for quite a long time; why would it evolve into something else today on this latest attempt? Sideways is a trend direction, just like the “up” or the “down”. Eventually, we are going to see a large decisive move; but, for now, most of the smart traders tend to conduct their business between support and resistance.

It is always funny to see that you get the largest trend days within trading ranges. But, not back-to-back trend bars unless they run against each other just the way they did on Tuesday and Wednesday. The contradiction in the chart readings means there isn’t a single thing that you can take for granted.

Another example is this week’s candle as it spiked below the 10 period exponential moving This week’s S&P 500 candle as it spiked below the 10 period exponential moving average only to close a couple of points above itaverage (10 EMA) only to close a couple of points above it. On the most basic level of trend analysis it means that the short term trend is still up. Bulls have the directional edge. On the other hand, the same weekly chart shows a clear, but somewhat moderate, bear sell signal as the market rejected higher prices in this week’s bear reversal entry bar. Therefore bears have the short term timing advantage. Who is right? The answer lies in the following two bars that we don’t see yet. We are at a tipping point, in a sense, and whoever gets the follow-through is going to rule the landscape for several weeks, if not for months.

I wish I could end my post here with this core forecast but I bet you want to see more; like charts, indicators and some numbers.

“Bulls have the directional edge … bears have the short term timing advantage”

To get to actual trading opportunities you’re still better off leaving the daily chart alone, since there is really not much to read beside the ranging market. While the clean trend bars with large bodies (when the close is far from the open) provide reliable trend following setups on the intraday level, they are just liabilities for the overnight trader in terms of sizable risk they carry.

Keeping a 10 minute chart, with an RSI indicator, kept us in the loop about the intraday trends, though. I marked the following milestones on the SPX chart:

The 10 minute SPX chart, with an RSI indicator, kept us in the loop about the intraday trends.numbered-list7

  1. The first bar of the week turned the market into a bear trend without confirmation – as shown at red number 1.
  2. Two hours later the first RSI vs price divergence was the start of the deceleration phase (mark 2).
  3. The reversal the following morning immediately broke the key resistance of the previous fourth of lesser degrees and turned the continuation of the bear trend iffy (i.e. opened the way to a trading range or a bull reversal).
  4. The RSI turned bull half an hour into Tuesday’s trading session and price soon formed a steady bullish channel into the close.
  5. Thursday’s open pushed the RSI to the edge of the bull support at 38, but not in a decisive manner, which made a trading range likely.
  6. By the end of the day, it formed a small tight convergence below the green sustainable bull area, which gave us the idea of anticipating another trend change, but the momentum configuration came to life to late and triggered only on Friday’s open.
  7. The 90-minutes cycle turned the RSI bearish as it reached the sustainable bear trend zone. For the rest of the day the RSI indicator stayed between the grey bear boundaries. The bear legs were strong but the corrections were also tradable giving the day a range like overall look. The RSI shows a confirmed bear trend as of the close for the week, but given the larger picture it does not indicate more than a bear start for Monday’s open.

The market intends to get below Tuesday’s 2,099.42 SPX minimum and may reverse then. We can’t go much further when drawing conclusions about the 10-minute bear trend given the sideways nature of the daily trend. The ranging daily is the reason behind the large number of successful 10-minute time frame reversals.

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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