In Case You Missed It: What Technical Damage Was Done?

In Case You Missed It…

We finished another eventful week, volumes were high and liquidity struggled. I anticipate another busy week next week. NDX lost approximately 5% since last Friday, SPX lost approx. 2.5%, IWM lost 2%, and the DJIA lost approx. 1%. So what technical damage was done? Here is the weekly chart of SPX:

Price fell out of its upper range and back into its summer trading range, and down to its 200-day moving average. A convincing break of 7237 SPX would be a problem for the bull case. TSV is now below the zero line, which should not last long in a bull market. But a bounce from here is not guaranteed, nor is there a clear setup for more immediate downside. Not to bury the lead, I will quote Avi’s latest Flagship service post from Friday afternoon:

“Hard to say that there is an immediate impulsive downside set up here. So, I have to assume the market may try to push higher before we drop again. Maybe we do that Sunday night?

But, one way or [another], I think we are pointing lower as we have no impulsive move off the recent low.”

This is the third week in a row that we closed short gamma. We are in a “don’t trust the bounces” regime until the GT level is retaken. When short gamma, options dealer hedging activity exaggerates moves in both directions. Rally’s extend further than expected, and selloff’s run down more than expected. As such, increased volatility should be expected in the near term. Importantly, liquidity has evaporated this week and was overwhelmed by the trading volumes we have been seeing. (Learn more about the GT level here: https://www.elliottwavetrader.net/gamma-optimizer/Understanding-the-GT-level-202012076573537.html.)

Before turning to the wave count, it is important to note that NDX did break below its 200-day moving average and did convincingly break below its “sideways support,” as I’ve been labeling it:

This is actually a 2-day chart of NDX. While the 200-day moving average can offer support on a daily chart, for indexes you will often find that it offers final support on the 2-day chart during bull market corrections. Price tends to remain below the 200-day moving average on the 2-day chart during bear markets (as can be seen in 2022-23). Bulls clearly want NDX to find its footing soon.

Volatility

After remaining elevated for three weeks around the 19.40 level, VIX is now at 25.64. Dealers are not only nervous, they have no idea when to be nervous. This is evidenced by the shape of the VIX Futures Term Stucture. From VolChart.io:

Notice the shape of the curve compared to last week; it has an “L” shape. The back of the curve is flat because dealers don’t know when to expect trouble so they price the back end the same. Meanwhile, the front end of the curve is very inverted. This is a very concerning configutration.

Again, to repeat what Avi said: there is nothing to indicate that a crash-like event is imminent. But if one were imminent, things would look like they do now.

So where are we in the count?

I will be brief going over the count, as so much depends on what happens in the near term. So I will present you with Mike’s near-term SPX chart, posted to the Flagship service as a Market Update this afternoon, here: https://www.elliottwavetrader.net/trading-room/post/10429943.

There is a big difference between the green ii and the red iii circled on the chart. The nature of the next few waves will tell us a lot. Note that Avi also has a devious purple count that may make itself known in the coming weeks, but that is not crucial to what we need to know next week. In a bit of analyst confluence, Levi is showing a similar near-term count.

Other Trades – Metals and Miners:

The metals complex has also been busy. Could the complex have bottomed already? Yes. But that is very different from saying there is an all clear to go long. For starters, Avi wants the 5 wave pattern depicted on his GDX chart, filled in. Here is Avi’s 8-min GDX chart posted to the Flagship service Friday, here: https://www.elliottwavetrader.net/trading-room/post/10429598.

When it comes to metals, what I need to do next is to read Avi’s Weekend Analysis post on metals, which should be out by tomorrow(Sunday).

Other Trades – Bonds

TLT has been slowly filling in the pattern Avi wants to see. Find his latest update posted to the Flagship service on Friday, here: https://www.elliottwavetrader.net/trading-room/post/10429805. We would like to see a corrective move down to the 2/a area:

ICYMI – New Daily SPY Signals

I will only mention this briefly, as a more in-depth announcement is likely to be made soon and I will have a lot more to say at that point.

Lead analyst Mike Golembesky trained an AI model on ElliottWaveTrader.net content, including our education section, Avi and Mike’s daily “Market Update” posts, and Avi’s “Weekend Analysis.” Mike added several quant-type parameters to the system and refined it until it produced the best results he could achieve. The system has been live since October in the VIX & Index/Sector trading room and is handily outperforming a SPY buy-and-hold strategy.

The concept is simple: instead of buying and holding SPY, we will be trading it based on the wave counts as presented in Avi and Mike’s daily and weekend updates. Mike shared a post with the Flagship Service on his Model AI on Thursday, here: https://www.elliottwavetrader.net/trading-room/post/10428157.

ICYMI –

On November 4, before any sell-off, Fibonacci Markets & Stocks analysts shared an SPX chart with the main room and suggested it may be topping. She followed up the next day, during the sell-off, with levels to monitor. It was an extremely prescient set of posts to the Flagship service and was much appreciated by me, for sure.

Last week, SPX and NDX were both approaching support. That support is now imminent. The market is likely to make a decision between green and red (or purple) soon, and we need to be ready. Have a watchlist ready in case we get 5 up and also have a written plan for what you intend to do if we enter a bear market, which could last years. Markets are in a precipitous posture all around. We need to be rested and focused for Monday.

[Stock Market is open on Wednesday, Veterans Day, but fixed income markets and many banks will be closed. Trades made on Tuesday or Wednesday will not settle until Thursday, the 12th.]