What’s Next For Equities?

Next Thursday is Thanksgiving thus we’re heading into a short trading week. Anyone who matters is going to head out for a long weekend starting Wednesday morning – I don’t expect much movement after that. And as there really is not much new to report on the LT chart front let’s make this a quick primer on what we may face next on the equities front:

Let’s start with the P&F and work our way down. One of the qualities I appreciate the most about point & figure charts is that they dispense with all the noise and just give you the facts. Compared with the spasmodic gyrations we had to put up with on the daily the P&F chart above clearly shows us that the SPX literally fell off the plate near 1415. Fortunately we got plenty of warnings in the preceding weeks and the double bottom break down was only one of many harbingers of an impending sell off.

But all good things eventually must come to and end. Although it’s quite possible that we drop a bit further here the odds of a bounce now outweigh any further downside potential. The E-Mini volume profile chart shows us a shallow hole near a support range I am also seeing on the daily:

As you can see the lower 100-day BB will soon meet us at 1335 – another reason why we may see a bounce there should Friday’s ramp turn out to be a final shake out. The hourly panel is what I’m now looking at for early clues. The breach of the 25-hour on Friday put me in a few lottery tickets. But I am now mostly sitting pretty – waiting for either a breach of the 100-hour SMA, some daily candle pattern, a NLBL breach, or some other technical indication that tells me it’s time to get positioned on the long side. Patience, grasshopper, patience!

Not to day that a bounce here may not necessarily lead us very far – I’m still on the fence as to what the upside potential would be should we continue to push higher. The standard 2.0 BB on the VIX as shown here is now rising fast and if equities continue higher next week or after Turkey Slaughter Day then we may soon face a close outside the Bollinger here on the VIX. Which of course would trigger step one into a VIX Sell Signal.

If you take a second look at the daily chart above then you’ll find our next Net-Line Buy Level (NLBL) at ES 1381.75 – a little over 20 handles away from where we closed last Friday. As I live in Europe I don’t have the benefit of writing this after the E-Mini opens at 5:00pm EDT. But assuming we head higher it’s reasonable to assume that a close near or outside the lower BB on the VIX would coincide with a touch of our daily NLBL on the E-Mini. Thus what happens next at 1381.75 will be a major test of whether or not the long term trend in equities is capable of recovering or if we are at the beginning of a new chapter here.

Seasonally speaking the bulls have the home team advantage as week 47 and Thanksgiving usually mark the launch of the EOY Santa rally. So I’d say the odds are high we at least get to our NLBL but if we fail there and drop lower then this may have LT implications that we’ll have to consider going into the new year. The onus now is on the bulls to pull the cart out of the mud and produce a meaningful bounce that will lead in new buying interest.

Public Service Announcement: On November 18 (i.e. today) CME Globex will be revising their trading hours for equity index products (e.g. ES, NQ, YM, etc.), which now are Mo. through Fr. from 5:00pm CST to 4:15pm CST. If you are running NinjaTrader, MultiCharts, etc. you’ll need to update your session templates to the new trading hours. In NinjaTrader this means you need to update the session template called ‘CME US Index Futures ETH’ – instructions are here.

Cheers,