Weekend Report for Monday, November 20
Remember it’s a short, holiday week. Volume is likely to be very light and price action is likely to be volatile, but in short pockets around economic numbers. Fed minutes are released Wednesday.
The indices remain in a bull leg with strong upside momentum. The rate of change of the October 26 launch has already begun to slow, but so far has included only the tiniest of retracements.
The SPX, NDX and DOW have formed minor Balance Areas and are likely to break sharply in Initiative fashion early next week. My guess is up, at least initially. If I am wrong and the break is down, I still believe the indices will recover to new rally highs before something more significant to the downside occurs.
The RUT has been more volatile in both directions and I think it will also make a new rally high before any significant downside occurs.
A detailed, SPECIFIC trade idea is included in this weekend’s report.
From last weekend’s Report:
The next truly significant upper level in the SPX is 4607, the late July high. It will be interesting to see how much follow-through to Friday’s ramp we see early in the week.
There is no change to the above, except I’m expecting a sharp break early in the week. See more details below.
Upper KRA: 4607
Lower KRA: 4352-4317
SPX – Short-term Auction
The Auction Market Process of development is in effect in all degrees of time, all of the time. Good trade opportunity is often presented when Auction timeframe structures “overlap” – and in this case when smaller degree Auctions combine into one larger degree Auction.
The vast majority of the trade of the last four days of last week have formed one Auction – close to the perfect Gaussian shape that comes to mind when “Market Profile” is mentioned. And it is a very specific “profile” – it is the structure of a mature Auction, a Step One and Step Two. Step Three will follow.
In general when we are dealing with a “mature” Auction we want to be favoring longs above the HVN (high volume node) and shorts below the HVN.
We can KNOW (there are very few things we can know about market behavior, but this is one) that one extreme or the other of the above structure will eventually be exceeded. We cannot know exactly when, but in the case of the stock indices and structure this tight for three+ days it is very likely to soon break.
A specific way to trade the above structure is to take the break of the first hour range on Monday – go long above the first hour range; go short below it. The stop would be at the other extreme.
This is one way to trade the above structure. We discuss trade strategy every day in real time in the Live Trade Room (and everything is recorded, archived and available for Members to review).
SPX – Intermediate-term Auction
No change: I find this chart to be the most useful from a trading perspective of anything else I use when the SPX is trending up strongly. Breadth will consistently form short-term lows in the band highlighted below in the panel containing breadth.
Tops are trickier, but seldom form until there is a divergence between new rally highs and breadth.
The initial signal a top of relative significance is in place occurs when price takes out a previous higher low to the downside.
No change: In spite of a tiny bit of two-sided trade prior to Friday’s ramp, the NDX remains extraordinarily vertical. Some retracement/Balance is overdue.
Apologies for the “busy” chart below. As I explained last week, I highlighted the % moves and the time in which they occurred for some perspective on the incredible ramp off the October low. This is not intended to “predict” anything more than a slowing of the current rate of change.
Upper KRA: 15932
Lower KRA: 15233-15170
No change: The RUT is as confounding as ever.
Upper KRA: 1770
Lower KRA: 1685-1670
Upper KRA: 35665
Lower KRA: 33891-33765
Not particularly helpful at the moment. But….note the divergence between the 3-day MA of NYSE advancing issues and price. Something to keep an eye on.
US 10-yr Notes
Favor longs. The 107’00 area is critical.
From last weekend’s Report: No change: The US Dollar has been a persistent, two-sided grind higher since the end of July. My guess (emphasis guess) is to favor shorts against the recent high.
No change: Gold traded into an important short-term KRA. Ideally it will hold under a bullish scenario.
Crude appears to be in an intermediate-term downtrend.