Bear Train vs. Deadcat Bounce Part 2
Today’s session was predictable and cruel. The
Sunday open rallied into an overnight high of 2019.50 followed by a 1HR 20EMA rejection
which is the standard characteristic of a bear train. Picking bottoms is very
hard even with the help from our hourly extreme oversold signals. By 7:15AM,
the market broke below Friday’s low which meant that the immediate targets of
1985 and 1970 were in the works when the day session opens in a couple hours.
Why do we say it was predictable and cruel? At
the day session open, the market quickly went for a 1HR 20EMA resistance that
was rejected and at 10:16AM there was this massive 15 point 1minute candle that
engulfed the previous 2 hours only for it to close as a huge top wick. This was
very cruel for the bulls that had buystop orders above the 2010-2012 breakout
point as the candle’s high was 2014 so all those orders were filled. This
created a quick and large feedback loop of trapped buyers and sellers chasing as
a new LOD was made 14 minutes later. At that point, the immediate target of
1985 was very likely to be fulfilled since it was just 6 points away. We knew
that the hourly extreme oversold signal would try to confirm itself again as explained
in the weekend update. Remember, if the initial signal got invalidated below
1995, then it would try to confirm itself again at the immediate targets of
1985 and 1970.
The hourly extreme oversold signal was once
again confirmed at 12PM and the hourly candle closed as a bottom wick hammer.
This provided the market with the possibility of a two legged bounce to a
minimum target of 2033. Near the end of the day, our intraday target of 2015
was fulfilled at the close and the overnight/tomorrow morning is setting up for
the Leg 2 up to 2033. Bulls really need to keep holding the 1HR 20EMA support
to trend up.
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Admittedly, that 1 minute 15point candle
earlier in the day really messed with our mentality as we got bull trapped real
hard and that made us go on tilt. Didn’t trade much for the rest of the day and
hesitated on the 1986 and 1990 long entries provided by our short term charts
and signals.
What’s next?
Daily closed at 2011.5, the deadcat bounce has
started its course as expected if the supports held from the weekend report.
The immediate target for the deadcat bounce is
back to 2030-2035 resistance as long as the 1HR 20EMA support is being
sticksaved and bears do not manage a hard rejection overnight/tomorrow morning.
If a hard rejection happens, then the immediate bear targets of 1985 and 1970
become valid again.
Just to clarify, we are
treating any bounce that remains below 2054 as a deadcat bounce and the
intermediate roadmap is still looking for the double top confirmation of daily
candle closing below 1998.50. Above 2054 then we would probably be in the camp
for the Santa Claus Rally as it becomes high probability.
Today’s low was 1983.25
which was the monthly 20EMA support area as noted in the previous report and
the 1985 immediate target. This just shows that the market is acting very
typical in terms of price action and has no crash setups like August 2015.
Remember, August 2015 had a very different context as we warned about the 100
point rangebound market of 6-8months at the end of July before we went on
vacation. If the market were to break above 2134 or below 2034 then it would
provide a fast and furious setup to the winner of the breakout. The current
setup only has a double top potential that needs confirmation with a daily
close below 1998.50 that could target the 100% measure move at 1892 and 61.8%
fib at 1932.68. As you can see, the context is very different and the
probability of success is currently much lower as well.
