Bear Train vs. Deadcat Bounce
Friday’s session was one of the easiest sessions to trade within the past 3 weeks because the market actually had followed through with the entire week’s bearish consecutive lower highs setup. As noted in Thursday’s report, as long as bears stay below 2060 and break the 2034.25 support then the bear train would open up the immediate targets of 2025 and the possibility of retesting the 1993-2000 support on weekly chart.
During the overnight session, the 3AM hourly candle had a
rejection at the standard 1HR 20EMA resistance that accelerated into a 1HR 8EMA
bear train by 5AM then subsequently broke under 2034.25 and the flood began.
This created a feedback loop of buyers having to be stopped out as that was the
week’s low and sellers chasing for the 2025 immediate target. As soon as price
hit our immediate target of 2025 we had our next intraday targets set to 2015
and 2000. Overall, it was just a textbook bear train day where all 15m 20EMA
were short re-entries for beginners to hop on the train and enjoy the ride.
Generally, a train day needs to hits all 3 of the tier targets to be considered
impressive. In this case 2025, 2015 and 2000 were all fulfilled by the close
and this shows commitment from bears. However, the dilemma is that hourly
extreme “A+ Tier” signal confirmed itself in the afternoon so a 40-50 point deadcat
bounce may be in the works on Sunday-Monday if certain conditions are met*
What’s next?
Daily closed at 1998.75, it is now below all moving averages.
For the intermediate roadmap, there’s a large double top setup waiting to be
confirmed by a daily close below 1998.50 that has a 100% measure move to 1892.
(61.8% fib is at 1932.68).
The current daily trend is a confirmed bear since
price is below all moving averages and there’s no major support until 1970 on
the daily chart. (weekly and monthly differs)
Weekly perspective: the market is hovering at the weekly
100SMA support of 1992~. The next minor support resides at 1985 and major
support at 1970 then 1932.
Monthly perspective: Attempting to break below the November
low 1998.5 with 20EMA at 1980 then no major support until 1905.
The immediate targets are 1985 and 1970. However, the market
is facing a very complicated situation with the hourly extreme oversold signal vs.
the on trend bear targets. Currently, our bias is the white line projection in
the hourly chart which has a 40-50 point deadcat bounce in the works. We will
adjust accordingly in real-time if price proves otherwise. Remember, price is
king and the signals are just setup potentials that provide great risk vs.
reward trades. If price invalidates the setup then that’s how we will
accordingly.
Knowing and understanding the timeframes is extremely
important as we head into next week. Hourly chart looking for a bounce then
retest support and breakdown. Daily/weekly are looking to confirm the double
top setup and march towards 61.8% fib 1932 and 100% measure move 1892 targets.
*The Hourly Extreme
Oversold Signal “A+ Tier” setup
The signal was confirmed around 2PM on Friday and the same conditions remain.
It invalidates under
1995 and targets 2054. Risk 14 for 45 if enter at 2009. Risk 5 for 54 if enter
at 2000.
Let us elaborate a little more, an hourly close below 1995
would invalidate this setup and the next supports are at 1985 then 1970. This
means that the signal will try to confirm itself again at 1985 and 1970.
Example: A possible scenario is a Sunday gap down/price
spike down to 1985~ and quickly reverses back above 2000 which could confirm
the signal again even thought the initial signal got invalidated.
Our executed win rate for the overall hourly extreme
oversold/overbought signals remains at 80%~ with over 200 trades across
multiple instruments since we started tracking it around 5 years ago. With that said, we only have a small starter
size position with long ES 2000 using a stop at 1995 and some SPY weekly calls.
We may adjust the stop at Sunday open just to not get potentially shaken out of
a great trade due to a spike.
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P.S, we know deadcat is actually two words, this is done on
purpose from the years of muscle memory writing these types of reports.
