“In 1966 Roger Zelazny wrote a novella titled “The Dream Master”, but Mr. Zelazny’s original title for this work was “The Ides of Octember.” The Dream Master is set in a future where the forces of overpopulation and technology have created a world where humanity suffocates psychologically beneath its own mass while abiding in relative physical comfort. This is a world ripe for psychotherapeutic innovations, such as the “neuroparticipant therapy”. In neuroparticipation, the patient is hooked into a huge simulation controlled directly by the analyst’s mind; the analyst then works with the patient to construct dreams – nightmares, and wish fulfillment that afford insight into the underlying neuroses of the patient.”
All we need to do is apply a bit of a twist and turn in words above and it would seem that the current market action is very fitting. Friday’s trade was interesting in that the market basically held to a tight range, albeit lower until the last 30 minutes of trade when all hell broke loose driving the broader indexes deeply negative with the futures closing “under water” to the cash markets. Sunday’s globex session began with another slide lower before traders were able to step in and bring things at least back to parity with Friday’s closes. Monday started out slightly negative but again was quickly brought back to “bounce” status as the buyers moved in. Unable to hold prices higher it appeared that the closes would be slightly lower. That was until the final 20 minutes of trade. There was one or several large sellers in the S&P 500 futures and the NASDAQ 100 futures that were bound and determined to reduce any hope of closing slightly lower. Once again the DJIA lost over 220 points, the SPX dropped 31 and the NDX down 63. The big differences being the futures are managing to close at parity to the cash.
The technical picture of the markets though does lean towards a more solid “bounce” higher taking place – even if there is another round or two of downside still waiting in the wings. Here is what I’m seeing as of the close on Monday:
In the NQ, it appears that 5- waves down from the October 9th high at 4046.75 are complete or nearly so. There remains the potential for wave 5 to extend and drop prices to next “stronger” support at the 3762 to 3677 area, which would represent a 50% and 62% retracement of the advance off of the April 2014 lows. Failure of that zone to contain the downside drops support to 3557 to 3404, a much large zone. Below that zone – the market is crashing and it would be hard to stop the avalanche much before 2965. However, without provocation from an outside “binary” event of catastrophic proportions I would not be expecting that to happen this time around. Technically, the NQ has pushed to extreme oversold readings on the daily chart, (both via the stochastic and MACD) with the Weekly chart dropping into oversold via the stochastic oscillator. So, while there may be additional “unwinding” and massive unwinding yet to come it may hold off for a while. Again, nothing is certain and with the multitude of reasons for the markets to give up all gains at this point it isn’t likely without an outside binary event kicking it into high gear, which suggests we’ve not seen anything yet!
The ES, like the NQ appears to have completed 5-waves down off of the October 9th high at 1968.50. There remains potential for wave 5 to extend and drop prices to next stronger support at the 1850 area and failure of that zone to contain the selling would drop support (stronger) down to the 1803 zone. Here as well the market has reached extreme oversold readings on the daily chart, both via the stochastic oscillator and the MACD. Should the “sky” really be falling the ES could quickly accelerate dropping to the 1675 area before the bulls would have time to come up for air. Again, I will add that without outside provocation via a serious binary event I don’t anticipate this type of decline just yet.
The YM as well appears to have completed or nearly so a 5-wave decline off of the October 9th highs as 16949. While there remains additional potential for wave 5 to extend the market is sitting just above support at 16200 to 16212, with a break there leaving a gap to next support, which comes in at 16045. Here as well the technical picture is extreme oversold on the daily chart – which “technically” may or may not provide support to reengage the buyers. With the bears appearing to be in total control at the moment it there may only be short covering taking place, which could dry up quickly.
The treasuries continue to see a capital flow into the 30-year bond and 10-year note as cash seeks a “safe haven” while the equity markets drop. Volatility is pushing above 100% via the IV percentile readings, which makes premiums very tempting. It would make sense though that when the dollar picks up it’s upward march again the bonds will retreat once again back below 140 on the 30-year bond.
Gold and Silver are in rally mode again along with the Euro – there may be a disconnect should the dollar pick up it’s advance again along with an outside “binary” event forcing the dollar higher, the Euro lower, and the precious metals will retain a “safe haven” status instead of dropping in line with the Euro. Such is life in the markets these days.
The Logical Signals Trade Room is up and running. We have an outstanding group of members that have already begun contributing across the board from trading indicators, patterns and products, to computer software and hardware.
Thus we are ready to move on to phase two of membership/subscriptions. Now that a core group has been established we have a few additional spots for other traders that may have an interest. Phase two, though will be somewhat more involved in that prospective members will get a chance to talk in more detail on their trading goals, experiences and expectations with me and possibly other members before deciding to join. At this early stage it is important to continue to steer the room in a direction that favors all of the members. Should you have an interest please contact me at Michael@logicalsignals.com I should have the updated “Invitation to My Trade Room” under the Trade Room tab back in place this week. Presently we have 10 additional spots open before closing this room until next year.
Trading the number remains key to being able to reduce and separate the “noise” from opportunity. This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the “chaos” and by trusting the mechanics of your strategy, be able to take advantage of them.
Opportunity continues to knock on our doors. While it doesn’t come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.
Steer the course and don’t compare yourself to everyone else. You are not they and they are not you. Remember to trust and believe what makes you unique at this moment in time and in this situation and allow others to choose for themselves. Don’t be swallowed up by the chaos and false emotions swirling around. Remember it’s just a number.