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The expected move has failed and a lot of the time 3780 is going to hold for a low here and send us substantially higher. High enough to hurt shorts. Bias has switched to long while above 3767. Targets are 3890 and 3950. Second buy level would be 3750 with stop 3730. If 3730 breaks, this was a bad reversal. Full bull exit under 3730.
In a successful setup, I expect to see this move ending on one of the highlights.
Double top today I was fine with. The next rally is not what I expect to see inside of the bear move. The purest in me is not all that happy when the 220 touches and the 76 breaks, but in this current bear we’ve seen a lot of slight overshoots and I’ve had to make amendments.
Typical trading rules are 86 fib won’t hit and 220 won’t touch. If they do, I’m more sceptical drops are pullbacks. We triggered this yesterday but, as I say, I’ve seen quite a few spikes just over the typical tolerance level and made some adjustments. But a second touch of the 220 I do not like.
We have our failure of three 76 trades in a row. The expected losing streak and the typical exit of bear trades when this happens are explained in the bear market rally post. When this happens it’s best to consider we’ve seen the final spike low and we’re due a second corrective leg - which will be one that destroys shorts at this level.
I expect to see these lows on a 161 of the first false breakout move. If the closes are used, we’ve made this. We’re 127 using the full wicks (And this is what’s made me net bearish to this point - but there’s a tiny little bit of room for subjectivity. If we use the closes, we have a double bottom on the 161.
Here’s a big version of this in the 10 yr bonds, to give some context to how I’m looking at this. We’d now be around where the blue circle is.
And obviously we do not want to be short for the next bit if that happens! We want to be long - make money long, and be ready to short into the next big bear levels.
Which is the current plan. Long 3780 - 3790. Stop 3767.
For targeting in this move, planning reversals and breakouts for the bull I am always doing the same two things.
1 - I fib the bottom swing high to low. I’m looking for 161s - 220s.
In this setup we always have a low hanging fruit trade by looking to see 127 hit, the previous range high retest and then we enter tight stops targeting 161. It’s high RR, and this can go whoooosh. This is usually the spot where the 3 losing signals generated in the bottoming range can be recouped.
Next I fib the swing down high to low and I’m looking at where my big 76 is. I know this is my risk area on a short and if I am shorting under it I should be aware parabolic moves up to there are possible. At this point I can already define my optimal pending short entry.
Pending short 4061
Stop 4090
Target 3360
Confluence
All things should agree. If all roads do not lead to Rome, there may be errors or mistakes. Confluence of signals helps to cement trade plans - so let’s look for our confluences. Firstly, just naked eye trend basics. Where’s the market most likely to hit structural resistance? Would be the bottom of the previous topping range.
Comes right in on the 76. Nice.
In blue I’ve added in the bottoming swing fibs. Here the default rules are to short the 161 and to expect spike-outs to end before the 220. Often getting really really close to the 220 but not quite touching (Caveats for tricky market, the purest rules have failed a few times during the bear).
And this agrees perfectly with our previous signals.
Highlighted here are our two low hanging fruit entries. One to the long side and one to the short.
All roads lead to Rome. This is now the primary trade plan.
Contingencies
If this does not play out, I’m going to a bit annoyed. Been thrown about a but recently. Often when that happens I work out what went wrong and then the next trades are big and painless profits. I think we’re in that spot now but this is a fake-out, it’s going to be one of those frustrating times everything just fails.
I know from experience when this happens, usually there’s a big break of the 161. Know this because I almost always buy the 161 in this setup and have learned if it’s preceded by this style of multiple touch top above the 76 of the last swing that usually does not go well for me.
If we get under the 161 this is going to revert the plan to momentum following short.
We have an inverted head and shoulders. Which is a pattern that works out 1/3 times and the failure path of it is a pretty strong one. If the head and shoulders fails we can short the breaking of the shoulders with stop above where the high is made. Typically we’ll see strong trending action. Head and shoulders fail in a blaze of fury.
Another swing up is also going to break a 161 of a W bottom. When this happens we usually go parabolic. To at least the 261. That forms the bat pattern. A broken bat will go further (And stronger) parabolic to the 320 - 423 fibs, and this is the crab pattern. If you’ve been on the list a while you’ll remember us covering this.
If you’ve not, the crab pattern tends to form when their a failed bat pattern. Scott Carney found the crab pattern as a derivative of the failed bat pattern. Scott did some good work on harmonics. Then he teamed up with a MLM and trademarked “Butterfly pattern”.
We got cease and desists for content we had on a YouTube channel at the time about harmonics. I liked Scott a lot less after - but the crab thing is a good find.
At this point it’s wise to put some consideration towards what we’ll do if the next bear setups fail into a rally. It’s possible we’ve completed the full first leg of the bear and we’d be due to put in a much larger correction. In this case, we take the exact same principles covered here but apply them to a bigger timeframe.
If this move was to happen, it’d ruin the hopes of many a bear. I do not fancy being one of them. I’ll be ready to quickly make moves long and follow the momentum if this is happening. I want to catch a fair chunk of the long trade which will allow me to bet big on all the bear levels on the way up.
Not having these plans can make you fall prey to the fact there’s always something to support a thesis if you’re looking for it. The hammer and nail thing. From bottom to top are highlighted signals bears can easily pick up shorts on - regardless of what the market is doing.
Retests last low.
Retests last base.
Retests bigger next base.
76 fib of the second swing.
76 fib of the full swing.
Double top.
The problem bears will run into if this happens and it blows on through is there’s not all that much space between these. It’s going to be easy to end up being perpetually short though the rally. Miss the value of the bull move and be tapped out by the time the big bear comes.
Each level will usually sell-off enough to give some false hope and then rally into a high again - And in this move, most bears get pulverised. Very, very strongly want to avoid that. Not only is it not fun to trade, it’d really screw up the bear market warning being short into a parabolic move.
No one would listen afterwards - they’d be tired of hearing about it right as we traded into the really big resistance levels. “Cried wolf” effect.
And on that note, we should also be aware of the modified bull trap / butterfly high. Our warning of this is the 76 not holding. A dump off the 86 and then the 76 breaking again - this signals risk of a new high in the butterfly form.
I’ve explained this move in the BTC false signal. This would be the max pain move. Bears would be killed. Bulls over-confident into the new high. It’d be absolutely impossible to warn people about the butterfly top risk if wrong through the rally. Very much learned that from BTC. The top was obvious, but very few were listening by then.
Bull bias over 3770.
Buy dip off 127 and prep for parabolic.
Look for fib retracement fibs to break and buy retests.
Look for short setups on the key fibs.
Plan reversals on bear failures.
Bull plan fails spectacularly if we do not see strong move.
Current bias is heavily long while we hold above 3770.
Swing bias is still strong short - but with a great deal of consideration given to how to manage different types of bull traps. To be able to take all the high value shorts, we need to be making money in the parabolic longs if these moves come. Opportunity costs of being perceptually incorrectly short are very large.
If the bull plan fails, we’ll be aggressively short again. But over the last days I’ve not seen the things I expected to see in the strong sustained bear. And it’s best to trade what you see and not what you think. If the bulls run over the bears at 3800, the bulls have the short/medium term edge.
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Paid members, we’re going to give it a bit of time and wait for a stronger “Yay or nay” nod from the market and then we’ll get a lot more specific on our plans to build positions. If either one of the breaks to the up or downside come, we’ll probably have strong intraday trends.
By planning well, very large profits can be made in these. Does not matter which way it goes. To save writing up detailed plans to either side, we’re waiting to see a break above the range or a failure of the bull move. Once we have one of these, we’ll get into detailed trade plans.
I have a feeling we might see the month close strong. Maybe a big wick on the monthly candle. Closing around the red line. This is more of a musing than a forecast. It’s just something I “Have a feeling” may happen. If that happened, I’d be very bearish into the month ahead. That’d seem “Trappy”.