So Many Bullish Comments

Yesterday's 4-Hr ES futures chart closed at 2,923.50. Today's chart settled at 2,852.50 very close to the 18-day SMA, with some -70 points of loss occurring today. If you read the comments on yesterday's post, they are uniformly bullish. Those expressing long-winded opinions said things like "defense of 2,900, leads to 3,000...". Or, "I'm still believe the financials have the clearest pattern, and suggest another 7% or so rally to go." Another said, "agree, the longer we hold up the better of going up to 3K." etc. etc.

First, here is the four-hour chart. One nuisance blogger said I shouldn't change chart styles. I should just admit I was wrong or right. So, here is the continued chart style so the poor soul doesn't get confused.

ES Futures - 4 Hr - Beginning of Wave ((c))

The point is not what individuals say, or that they can't have an opinion. The point is why were they uniformly bullish going into the day, and I was resolutely counting downward? What am I looking at that they are not? Five things. You will see below. Let me explain.

In order to win at this game you have to look at things others are not. Everyone looks at price. I'm here to tell you that if you just look at price, you might as well pick up your ball and take it home. You are going to lose. The one thing that everyone sees is price. The problem is that price alone doesn't tell you where price, itself, is going.  By definition, it can't.

What you need to look at are some things that help predict where price is going. What you need are Leading Indicators of price. So, in addition to the chart above, I am going to post two others - in the spirit of learning - although the way some of the nuisance posters behave on this blog, I'm not sure I should. I mentioned the bullishness above. But, I already knew that - not from the blog posters, but from this chart.

Put-Call Ratio - Daily - Speculative

One of the charts I look at daily is the put-call ratio on equities. This is yesterday's chart. Once again, options players were 'speculating' on higher prices big time as the one-day ratio dropped to 0.50, the lowest in a while. Many people do not make a habit of looking at this chart. Maybe they should.

But here is a more telling chart.

ES Futures - Daily - Volume and Day Count

First, look at the futures volume in this rally. Yesterday was the lowest green volume of the rally days. But everyone is bullish?! Volume is a leading indicator of price. You can't go up if it is not well-supported by volume.

Secondly, look at the day count. Very, very few casual analysts look at the Fibonacci number of days, weeks and months. But, time is also a leading indicator of price. If the up wave continued today and tomorrow, then it could have gone to 55 days. It didn't. No, after a near Fibonacci perfect 21 down days, this rally was a near perfect Fibonacci 34 up days.

So, now that there is a down day, is the down move over? Probably not. Now that things have gotten started, there 'should be' a Fibonacci 5 - 13 day down draft depending on how much ground is covered each day. One wise commenter noted how a cycle analyst called for this week to be a 'down week' based on his proprietary cycles. Hey. How about making this so simple you can do it, too, and not get confused with cycles and left-hand translations, or shortened cycles or inverted cycles? Very confusing: at least to me.

Momentum was the next leading indicator. The daily slow stochastic which I don't show you every single time had turned down. But I noted when it lost its embedded status. Volume leads momentum, and momentum leads price.

So, what is it going to be? Are you going to be a loud-mouthed, opinionated commenter? Or are you going to dig in, and explore the leading indicators of price as well as price itself.

There are very few leading indicators of price. They are:

• Sentiment (e.g. put-call ratio), which determines...
• Volume, which influences...
• Momentum, which runs out...
• In Time, causing a turn...
• Which is a fractal in the wave count

It must work this way. People must decide to buy or sell before prices go up or down. Just look what happens when they 'withdraw their bids' and prices plunge. And, their tracks - whether Mom 'n Pop, or the Smart Money - are visible in the markets at all times.

I have done this analysis in several weekend videos. I will not do it every day for you. I am looking to see 'who' is learning .. 'who' is applying. Definitely not who is just flapping their gums.

Have a good start to the evening,
TraderJoe