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Trading Lessons

Stock Market Trap Has Been Set

Stock-Markets / Stock Market 2017 Dec 20, 2017 - 10:43 AM GMT

By: Anthony_Cherniawski

Stock-Markets

The problem with Triangle formations is that many are irregular as is this one. The six-week-long whipsaw is about to end badly for many traders who are short treasuries. In fact, this “breakout” will bring in more shorts who do not know that this is a reversal signal. Wave [c] will be a powerful one because of this crowded short trade that will only realize too late that they are trapped going the wrong way on a one-way street.


The Triangle target appears to be 21.29, a substantial move in treasuries.

Back in October I had already suggested that there may be a prospective Head & Shoulders pattern with a strong downdraft in treasuries. The pattern is maturing with the right shoulder under construction. You will notice that the up-tilted neckline now helps to form the Triangle formation which may allow Wave [c] to go to the mid-Cycle resistance, at a minimum. A breakout above that level, however, may allow the right shoulder to go all the way to the Cycle Top at 127.19. That may infer a panic decline in stocks. The piece de resistance would be a reversal all the way down to the Head & Shoulders target near 120.00.

The SPX may have completed its rally in the overnight session and now appears to be in reversal. There is too little decline to make any signals here. In fact, we may not see a signal until SPX has crossed Short-term support and the final upper trendline at 2656.04. Should the VIX and Hi-Lo offer their signals earlier, we will take those, instead.

NDX is at its Cycle Top at 6470.72. A breakdown here may be a reason to take an aggressive short position, but confirmation won’t come until it declines beneath Short-term support at 6374.44, unless the VIX and Hi-Lo give their signal.

VIX is approaching its trigger at 10.54, its prior high. One may also use mid-Cycle resistance as a safer aggressive trigger point.

The NYSE Hi-Lo Index appears to be hovering just above the 50-day and mid-Cycle support at 100.65. Those levels have lost some of their value due to the long consolidation between those levels and the trendline, which is near 45.00. A close beneath the mid-Cycle would be an aggressive signal, only to be confirmed well beneath the trendline and a breakdown beneath prior lows. Remember, the VIX and Hi-Lo go hand-in-hand.

Regards,

Tony

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As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals.

Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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