The futures has rallied strongly in November, however many of the bars on the each day chart have been weak. This makes the rally extra prone to be a bull leg in a buying and selling vary that began in September, and the beginning of a measured transfer up. E-mini futures down most likely on subsequent 10% transfer.
are turning down on the weekly chart. That is most likely the beginning of a buying and selling vary that may final many months.
is pulling again from a parabolic wedge purchase climax on the each day chart. Merchants ought to anticipate a minimum of a couple of weeks of sideways buying and selling.
Gold
Gold weekly chart turning down from wedge purchase climax just under 2011 all-time excessive
The weekly chart has sold off since the August high. The reasons I am showing it is to remind traders that TV experts are often incorrect, and to explain some things that are going on in the E-mini and bond futures markets.
If you watched any financial show this summer, you repeatedly heard how gold was early in a bull trend and that it was going far above the 2011 all-time high. The soundbite was “interest rates to zero and gold to infinity!” All of the experts were linking the two.
Where have the experts gone now that gold is down almost 15% from the high? No one is talking about gold now, because they don’t want to remind everyone about how bullish they were in August when gold was testing the top of a buy climax and testing the 2011 all-time high.
What next?
The bears are hoping that the gold market is forming a double top with the 2011 high. They want a bear trend reversal. The rally since the August 2019 high has had 3 legs up. The bears hope that this is a wedge rally to a double top with the 2011 high. They know that this is a reliable reversal pattern.
A reversal down from a buy climax typically has at least a couple legs sideways to down. The current selloff is now in its 3rd leg down. But since the 3-month selloff is in a tight bear channel, it is probably a complex 1st leg down. If so, traders will expect the 1st rally to fail. They then would look for a 2nd leg down.
At that point, if there is a reliable setup, they might buy for a resumption back up to the 2011 high. More likely, the weekly chart will enter a trading range. This process will take 20 or more bars, which means 6 months or more.
This selloff is now in search of an initial bottom. A reasonable target would be around the June low, which is a little more than a 50% retracement of the rally that began in March.
A wedge reversal often retraces to the start of the wedge bull channel. That is the March low. That is also at the July 2016 high, which is the top of the 2013 to 2019 trading range.
The news is always extremely bullish just before a reversal down
It is important to understand that when a market is in a buy climax, the news is always extremely bullish. It has to be, otherwise the market would not be racing up.
But the mistake is to assume that the news is right. The experts on TV are constantly giving all of the reasons why the trend is early, and it will go much higher. They are very confident, and they arrogantly look down at the fools who are not already long. They wear nice suits and have impressive titles, but they are idiots.
The church of gold
This is especially true in the gold market, which is more of a religion than a commodity. When it is up, they say you must buy because it is going higher. When it is down, they tell you that you must buy because it will soon race back up to the high.
Ask them what would make them sell. They will tell you that there is never a reason to sell, and there is always a reason to buy.
Do you think that is useful advice? If you bought gold for $2,100 in 2011 and watched it lose 40% of its value in 6 years, do you think that was the best choice for your money? Gold
Buy climaxes lead to profit-taking
Now, why does a market reverse down from a strong bull trend? You cannot have a buy climax unless everyone is bullish. FOMO… Fear Of Missing Out. Smart traders buy early and look for an extreme buy climax to take profits. They buy low and sell high. Also, smart bears start to short when there is an extreme rally, and they sell more higher.
The last buyers are the momentum traders. And don’t forget the dumb money traders who missed the move. They believe all of the hype and are desperate to buy at any price.
The momentum traders are buying because the market is going up. Once it stops going up, they quickly exit. Their panic selling once they sense that the bulls are starting to take profits accelerates the reversal down.
They are not investors, who are willing to use wide stops or no stop at all. Investors will buy more during a collapse because they are in it for the long haul. They are confident that gold will be higher 10 or 20 years from now, and will use selloffs to buy until they have the desired amount in their portfolio.
Gold
The dumb money traders, who follow the gold gurus on TV, buy at the top and hold until after the crash. They then exit with a big loss. They do not understand the risk of buying during a buy climax.
Very importantly, they do not have a plan to exit. They do not think about whether they are momentum buyers or investors. Remember, a momentum buyer exits quickly when the rally slows down. Investors buy more after a big selloff.
Dumb money does not have a plan. They expect the gold tree to grow to the sky, like the guy on TV says. When gold sells off, they are faced with a reality that is very different. They suddenly decide that they are not willing to sit through a 6-year bear trend that erases 40% if their money. And the TV guy is nowhere to be found to help them manage their bad trade.
Interest rates bottoming after 30-year bear trend
Because of that linkage between interest rates and gold, I want to summarize that I have been saying about the bond market since the March buy climax. I have talked about the bond market for years, saying that it is near the end of a 30-year bull trend and that it will fall for at least a decade. Remember, the bond market moves opposite to interest rates. As bonds fall, interest rates rise.
I said that interest rates could not hit zero in the U.S., and that they will work higher over the next decade. The bond futures market could briefly go above the March high, but at this point, it is more likely that it will not. If they rally over the next several months, the rally should fail around or below the old high. They could stay sideways for several more years, but they will be higher 5 years from now, and higher still 5 years after that.
So much for “interest rates to zero and gold to infinity.”
Bitcoin market
Bitcoin each day chart is popping down from parabolic wedge purchase climax and take a look at of all-time excessive
Bitcoin Every day Candlestick Chart
The index each day chart has rallied 5-fold for the reason that March low. Pundits painting bitcoin as a alternative for gold as a storehouse of value. The information usually describes it as “digital gold,” implying that persons are promoting gold and utilizing the cash to purchase bitcoin. Whereas that is true to some extent, it’s inconceivable to understand how vital it’s. I believe not very.
The three-month selloff in gold occurred as bitcoin went up 500%. Is that this as trigger and impact? No, as a result of there are numerous causes to personal gold which might be unrelated to bitcoin, and plenty of causes to personal bitcoin that don’t have anything to do with gold. Nevertheless, they’ve had a powerful inverse correlation over the previous a number of months, and the TV monetary information usually says that a number of the cash going into bitcoin is popping out of gold.
Bitcoin has dependable chart patterns
What subsequent? Whenever you take a look at the each day chart of bitcoin over the previous 2 years, you may see that there are numerous conventional chart patterns. You must anticipate that with all markets which have a number of contributors.
It’s because a chart is solely a map of rational human conduct. That conduct is coded in our genes. Till we evolve into one other species, the conduct will stay the identical. It doesn’t matter in case you are buying and selling stocks, baseball playing cards, or bitcoin. In case you take away the labels, the charts would look the identical.
Parabolic wedge purchase climax
As robust because the 5-week rally has been, there are three legs up in a decent bull channel. The rally is subsequently a parabolic wedge purchase climax.
Purchase climaxes sometimes entice profit-takers. If a bull takes income, he isn’t going to purchase once more 1 bar later. He’s involved that the profit-taking could possibly be robust sufficient to result in a deep selloff or perhaps a bear development.
The bulls nonetheless wish to purchase, however they like to attend till after they see the bears attempt to fail a minimum of twice, to create a development reversal down. Subsequently, a purchase climax often results in a minimum of a pair legs sideways to down.
If the bears fail to create a development reversal down, then the bulls will purchase once more. They anticipate the bears to fail and quit, and for different bulls to purchase once more as nicely. They’re in search of a resumption of the bull development.
But when the bears create an infinite pullback down, merchants will conclude that the pullback has advanced right into a bear development. There is no such thing as a signal of that in the intervening time.
Extra usually, an enormous transfer up and the reversal down is a Huge Up, Huge Down sample. That generates Huge Confusion, and confusion is a trademark of a buying and selling vary. This selloff is probably going the beginning of a buying and selling vary that ought to final a minimum of a month. The bulls will see the vary as a bull flag. The bears will search for some type of double high, along with the 2017/November 2020 double high. Subsequently, merchants anticipate bitcoin to go sideways for a minimum of the subsequent month.
E-mini futures
Month-to-month E-mini chart has enormous bull bar in November, however October was a bear bar and subsequently weak purchase sign bar
Emini SP500 Futures Candlestick Chart
The month-to-month S&P500 E-mini futures chart has an enormous bull bar to date in November. There may be one buying and selling day left within the month. The bulls need November to shut above the September excessive at a brand new all-time month-to-month excessive. That may improve the possibility of upper costs in December. Nevertheless, the bears need November to shut again beneath the October excessive. That would cut back the possibility of a powerful December.
October was a Excessive 1 bull flag purchase sign bar. When the E-mini rallied above the October excessive, it triggered the month-to-month purchase sign. The bulls desire a resumption of the 5-month bull development.
However the October purchase sign bar was a bear candlestick. That’s an unreliable purchase sign bar. With it being the 2nd consecutive bear bar, it’s much more unreliable. There’ll extra possible be extra sellers than patrons above the October excessive, though there isn’t any signal of them but. The rally may final a pair months, however merchants ought to anticipate a reversal down inside a month or two.
The reversal down in September led to a 2-month pause within the bull development. Since November is an enormous bull bar after a 5-month purchase climax, it most likely will likely be an exhaustive purchase climax. If that’s the case, merchants will anticipate a minimum of a pair legs sideways to down as soon as this climactic breakout ends. It ought to finish in December. Consequently, merchants ought to anticipate the E-mini to be principally sideways for the first half of 2021. That may improve the variety of bars within the buying and selling vary than started in August.
Potential hole up on Month-to-month chart on Tuesday
Monday is the ultimate day of November. The E-mini has been in a powerful bull development for the reason that March low. If Tuesday gaps as much as a brand new all-time excessive, there will likely be a uncommon hole as much as a brand new all-time excessive on the month-to-month chart.
Whereas the hole could possibly be massive on the each day chart, it can most likely be small on the month-to-month chart. Small gaps sometimes shut earlier than the bar closes. If it stayed open by way of December, it could possible shut in January or February.
Everybody on TV is bullish
What concerning the uniformly bullish consultants on TV? In case you’ve been buying and selling for a couple of years, you may need observed a sample. There may be an annual ritual. In November and December, the monetary networks trot out an infinite collection of consultants predicting that the subsequent 12 months will likely be up 10 to 20%. You don’t get on TV until you might be desirous to say bullish issues concerning the coming 12 months. If they didn’t put you on final 12 months, you must make an much more outrageously bullish prediction this 12 months to ensure you may be on TV.
Since most years are up, it’s a protected factor to foretell an up 12 months. Nevertheless, not all years are up. I’ll present the yearly chart on the finish of the 12 months. It’s at present an enormous exterior up bar. However that’s not bullish when it comes late in a bull development. The present bull development is now 10 years outdated. The rally is now late.
Extra usually, an enormous bar late in a bull development attracts profit-takers. Subsequently, each the month-to-month and yearly charts seem like they’re predicting an absence of a rally for the subsequent 6 – 12 months.
Might the charts or my studying of the charts be improper and the TV consultants proper? Completely. However the month-to-month and yearly charts seem like they may result in a sideways market for a lot of months.
Weekly S&P500 E-mini futures chart weak breakout above Excessive 1 bull flag purchase sign bar
Emini Weekly SP500 Futures Candlestick Chart
The weekly S&P500 E-mini futures chart has a sample that’s much like the one on the month-to-month chart. There’s a Excessive 1 purchase sign bar, and it was the 2nd consecutive bear bar.
Merchants sometimes anticipate extra sellers than patrons above a weak Excessive 1 bull flag purchase sign bar. The market can typically rally for a pair bars (weeks), however it then often reverses down a 2nd time. The 2nd reversal is often extra advanced and lasts longer. Whereas the pullback in September led to 2 sideways bars, if there’s a pullback throughout the subsequent few weeks, merchants will anticipate a minimum of a pair small legs sideways to down. They’ll search for a buying and selling vary lasting a minimum of a month.
Can the E-mini explode to the upside and start a powerful rally to the tip of the 12 months? The bulls have a 30% likelihood. Nevertheless, with this week closing on the excessive and powerful momentum up three weeks in the past, subsequent week ought to go above this week’s excessive.
Every day S&P500 E-mini futures chart in robust rally, however subsequent 10% transfer will most likely be down
Emini Every day SP500 Futures Candlestick Chart
The each day S&P500 E-mini futures chart had a fast transfer as much as the November 9 excessive, however then went sideways. I’ve talked concerning the bars in that rally and in November a couple of occasions. In November, about 75% of the bars closed both round their open or in the course of the bar. These are weak bars. But, the month is forming an enormous bull bar on the month-to-month chart. One thing is improper right here.
Bull tendencies often have a number of bull bars closing close to their highs. Look again on the summer season rally for example. If the November rally isn’t in keeping with a bull development, it is likely to be an enormous bull leg in a buying and selling vary. As a normal rule, if one thing doesn’t look the way in which you assume it ought to, the chart might be forming a buying and selling vary.
If I’m proper and this rally to a brand new all-time excessive is solely a powerful bull leg in a buying and selling vary that started after the September three high, the place is the top quality? It’s most likely not a lot increased. As I wrote above, December could possibly be one other bull bar on the month-to-month chart, however merchants ought to anticipate a buying and selling vary on the month-to-month chart by early subsequent 12 months.
The following 10% transfer within the E-mini will most likely be down, not up
The underside of the vary will most likely be across the September low. That’s about 12% down from the present November excessive. Let’s say about 10% down. Since I believe the November rally is a part of a buying and selling vary, and never a part of a profitable breakout of the 400-point tall, 4-month buying and selling vary, then I’m saying that the subsequent 10% transfer within the E-mini will most likely be down and never up. We simply don’t know when the transfer down will start. I consider it can begin in December or early January, and that it’ll come earlier than the E-mini rallies 10%.
Additionally, if the E-mini will get down to close the September low, it can most likely fall beneath. It’s because merchants would conclude that the E-mini had entered a buying and selling vary, and legs in buying and selling ranges have a tendency to interrupt past help and resistance earlier than reversing. Subsequently, if there’s a selloff, it can most likely be extra like 15 to 20% as an alternative of simply 10%.
What would trigger the selloff? Will probably be technical. The each day chart appears to be like like it’s in a buying and selling vary. It’s now on the high and subsequently it ought to return to the underside.
Information reporters are narcissists and incorrectly assume the whole lot is brought on by the information
There may be information daily. Regardless of the information is on the day the selloff begins will likely be what TV reporters will definitively declare as the explanation for the selloff. That’s as a result of they consider that they’re the middle of the world. To them, the whole lot is said to the information, which implies to them. They can not think about that one thing else unrelated to the information, like technical components, is likely to be the true trigger.
The information could possibly be the catalyst, however the price motion is already telling us {that a} selloff is probably going. There are unhealthy bull flags on the weekly and month-to-month charts and too many bars on the each day chart with weak closes.
Additionally, keep in mind what I wrote final week. There may be an elevated likelihood of a shock after January 5. What’s the shock? Who, is aware of? That’s what makes it a shock!
What about subsequent week?
The momentum up within the rally from three weeks in the past was robust sufficient to make a brand new excessive possible this week. As I discussed above, November has been a really robust bar on the month-to-month chart. Merchants shouldn’t be shocked by a spot as much as a brand new all-time excessive on Tuesday when December begins. That might result in an acceleration up for a number of days and even a pair weeks.
However it could most likely be an exhaustive purchase climax and the tip of the rally from the March low. There may be at present solely a 30% likelihood that the breakout above the September excessive will result in a 400-point measured transfer up.
