July 5, 2018
Just before the July 4th holiday, the US equity markets were about to rally above a defined wedge formation that has been defining price range for the past 7+ days. As the markets opened on July 3rd, prices had already started to rally and appeared to be ready to rocket higher by a decent amount. Yet, by early morning, news that China had banned Micron chip sales in a patent case caused the markets to reverse quite steadily. This news, as it relates to US chip manufacturers and a major part of the NASDAQ, creates a temporary speed bump in the perceived rally that we have been expecting for weeks.
The Technology sector makes up a very large component of the US major indexes. Other than the DOW, technology firms are spread across nearly every sector of the US major indexes and this case may have some reach to it. As the trade tariffs and trade issues continue to ramp up, these types of explosive news items can drive the markets up or down as the news hits. We consider these external factors that push the market one way or another while the core market dynamics may want to drive prices in another direction.
Recently we showed a number of research posts indicating our proprietary predictive price modeling systems cycles and price projections that show the core market bias should be to the upside. We believe these news events cause a price pause and an opportunity to take advantage of lower price rotation which moves against the core market dynamics.
This holiday week is certain to see news event drive price rotation as the volume is thin and many people are vacationing or out of town. This means people will not be active in the markets as much and news events can push price in directions and trends that may not normally be as present in price.
This 240-minute chart of the ES shows the pennant/flag formation that we mentioned a few days ago. We believe the support level near 2700 is key to the upside breakout that is likely to happen. This pennant formation has already formed a completed 5 waves and should be pushing higher – although the news from China regarding Micron seemed to create a late price decline. As long as that 2700 level holds, we believe the upside price move is the eventual play in this market.
This Weekly ES chart shows a longer-term perspective of the price rotation. One can easily see the recent upside price rally from near 2550 to 2800. The current downside price rotation, from 2800 to near 2700, appears to be aligning with our Tesla Vibrational price cycles and our time/price cycles in the form of a bottom cycle formation near July 15 with an upside price potential rally that could extend 4~7+ weeks. Notice the GREEN vibrational range near the current price and notice the next outer RED range. As we break the GREEN vibrational range, our Tesla theory suggests that price will attempt to move in the easiest direction towards the next vibrational range – the RED level. This would suggest that price may attempt to rally well above 2800 within a trend that could last many months.
The NQ has reacted quite differently than the ES. This 240 minute NQ chart shows the deeper price rotation recently as well as the pennant formation that has constrained price. Additionally, one can clearly see the upside breakout of this pennant formation recently and the return of price to near-term support (near 7030). This return to support on the China news could indicate a renewed test of support before an upside move. Although we don’t expect the NQ to rally as much as the ES and YM charts, we do still expect to see some upside price moves in the NQ over time. 7200 to 7300 would be our immediate upside targets.
This NQ weekly chart shows just how clean the upside move has been after the February price collapse. While many people were initiating short positions thinking the markets were going to fall further, the rush of capital into the NASDAQ continued to drive capital valuations and appreciation. Now, with Q2 earning right around the corner, we believe the NQ will rally a bit on earning news, yet fail to really push much beyond the 7400 level. We believe the real earnings values will be in small caps, blue chips and the DOW and S&P. We don’t believe we will see blowout earnings numbers from most of tech this time.
A move to near 7400 would be a renewed push to new NQ highs. This would be a very positive move in the markets and would put incredible pressures on the shorts – creating a short squeeze. Far too many people fail to understand that a large amount of foreign capital is trying to avoid devaluation and price depreciation. Investors don’t like to sit on long-term holdings when a currency is devaluing excessively and stock prices (in that currency base) are devaluing as well. It is like a double-whammy of loss for investors that can easily move that capital into something without these risks. Therefore, as long as the emerging markets and foreign markets continue to experience some levels of price contraction, we believe the strong US Dollar and strong US Equity markets will be the “market of choice”. This means a continued “melt up” as global traders rush to find an investment that can avoid the risks of local exchanges/equities.
Please don’t get caught off-guard with regards to this price rotation and what it means to the markets. A massive price expansion pattern is setting up in the US markets that may drive prices much higher all the way through 2019 and possibly further. We believe many of the major analysts have missed this pattern and we have positioned our loyal members to take advantage of this move in the future.
Visit www.TheTechnicalTraders.com to learn how we can help you stay ahead of this market and stay on the right side of price trends. You owe it to yourself to learn how we can deliver superior research and trading signals to help you find profits and better manage your trades.
Our articles, Technical Trading Mastery book, and 3 Hour Trading Video Course are designed for both traders and investors to explore the tools and techniques that discretionary and algorithmic traders need to profit in today’s competitive markets. Created with the serious trader and investor in mind – whether beginner or professional – our approach will put you on the path to win. Understanding market structure, trend identification, cycle analysis, volatility, volume, when and when to trade, position management, and how to put it all together so that you have a winning edge.