US Stock Market approaching critical resistance. Do or Die? BREXIT caused a lot of volatility on all instruments types and caused the US stock markets to go down drastically. Since yesterday, the markets are going higher. What does this mean? Are we going back to retest the high again? Is this a fake movement up to setup for a big bearish movement? How far will it go up? These are just some of the questions that people are asking about around the world. So let’s address them all by analyzing the charts.
When the markets were going up, we relied on the $VIX and the $TF Russell futures. When the markets were going down, we relied on the $VIX and the $ES E-Mini SP500 futures. These correlations have been working and we will continue to use them until they don’t. Let’s look at the charts for each instruments to determine where we are now and where we are going.
First, let’s analyze the $VIX, the Volatility Index. It is the inverse relationship to the US stock markets. In another words, if the $VIX goes down, the markets go up and vice versa. Below is the $VIX weekly chart provided by Thinkorswim TDAmeritrade.
During the BREXIT, the $VIX broke the major resistance at 20.97 and went straight to the bottom of the cloud. The bottom of the weekly cloud has been acting as a great resistance. Until we close inside the cloud, the probabilities of the $VIX going back to the next major resistance of 32.16 will be low. The probabilities of testing supports will be higher. In another words, the markets will try to go higher even after a bearish pull back. In order for the US Stock markets to be short term bullish, the resistances at 22.19 and 20.97 have to hold.
It is end of the Q2CY2016 so it is going to be very interesting to see where all the markets close by end of the week. It will influence the forecast for the next couple of months. Our monthly newsletter that will be published this weekend will include the next of months of forecast for all Global instruments.
Now that the $VIX is indicating the markets will go up, the question is how far. On social media when the markets were going down on Monday, we posted the following:
We held the support at 1982.25. Yesterday, we posted the following on social media:
The 2032.75 was the minor resistance before the major resistance. Last night (EST), we reached this resistance and started to break it. This now indicated, we have a high probability of reaching the major resistance now. What is that major resistance? What does this mean?
Let’s look at the $TF futures first since that was controlling the bullish side of the market before the BREXIT. Below the weekly chart for the Russell futures.
The $TF futures didn’t reach the weekly support of 1065.00. The major resistance is 1133.40. Below is the daily time frame for the Russell futures.
The daily chart has the same resistance as the weekly. Therefore it is an iMTF™ resistance and has a high probability of holding. The daily closed below the cloud and now going through a pull back. As long as the resistance at 1133.50 holds, we still can enter a long term bearish trend. In order for these probabilities to go away, the resistance has to be broken.
Below is the weekly chart for the $ES Emini SP500 chart. We reached the support at 1982.32 right when the $VIX reached the bottom of it’s weekly cloud. This was a great timing element that occurred and indicated that the markets had reached a temp. bottom Monday.
The weekly resistance is 2050.75. Below is the daily time frame for the $ES Emini Sp500 futures.
This charts looks very similar to the $TF daily chart. It has the same resistance as the weekly time frame. Therefore it is an iMTF™ resistance at 2050.75. If this resistance holds, the markets can enter a long term bearish trend.
Below is the 240 minute swing trading time frame. It has the same iMTF™ resistance as the daily and weekly.
Below is the 1 hour trading time frame. It has the same iMTF™ resistance as the daily and weekly. This resistance is the same for the 1h, 2h, 4h, daily, and weekly time frame. This increases the probabilities of holding.
In trading, there are no 100% no matter what anyone tells you. Therefore, we will go short term bullish until we get to this resistance. At that point, we will go neutral and wait and see on what happens at this resistance level on the lower time frames.
In summary, the $VIX, $TF, and the $ES are all telling the same story. We are in a short term bullish movement to the iMTF™ resistances of the Emini SP500 and Russell futures. Once we get there, we will evaluate for a future forecast. Even though the resistance is strong, there are no guarantee so we have to re-evaluate at that point.
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