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Buy Death, Sell The Cure? – Stock Market Trading Setup for Wednesday February 5, 2020

S&P futures are surging again. Cornohaha Virus is cured! Sell the news?

Here’s some 5:30 AM NY time perspective again. First the Shag High Composite, this time on a daily basis. The gap fill is under way.

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China Stock Market Chart

The breakdown last week looked impressive, but it accomplished nothing. It merely slot raced across and often crossed, slightly descending trading range to the bottom of the channel.

Then BOOM. Having reached trend support it rallied, helped along by the People’s Bank of China (“People’s” hahaha) injection of a gazillionillion yuan into their trading system. Most of that money promptly left Shag High for the friendly confines of Wall Street, where fucutures erupted in an orgasm of buying.

But some of the PBOC’s money stayed home, and triggered a spirited rally off support that was still rolling today but seemed to lose some steam.

So now we have a start on a gap fill. The mild downtrend channel is intact. If I had to guess, I’d say that the Shag High is probably headed for 2850-2900. But will this V bottom be the end of it? Not likely. A good short term low probably needs a pullback to test the low, with medium term momentum starting a positive divergence.

Multiple tests would be another possibility. What about a breakdown after this rocket launch fizzles? Not likely. The indicators say that the market got oversold enough on the plunge.

The important thing from the perspective of those trading the US, if China doesn’t break, then Wall Street can keep partying on.

Meanwhile, back on Wall Street, now that Cornohaha Virus has been cured, the S&P fucutures (ES) had exploded higher as of 5:30 AM in Noo Yawk. Below is a daily bar chart.

If this thing clears the January highs, it’s gonna look like the TSLA Chart- vertical. The conventional measured move target would be around 3460. They’d have to get through trend resistance at 3375. With the Fed pumping a hundred billion into Primary Dealer trading accounts this month and every month, I don’t see why the hell not.

S&P Futures Chart

Here’s the latest chart on the Fed Feed to Primary Dealers. Lots of parallel tracks. But hey, correlation doesn’t prove causation. Sure it doesn’t bwahaha. Typical economic bullshit. Sometimes correlation and a little common sense does demonstrate causality.

Fed Not QE

I update this chart with complete analysis 6-7 times monthly in real time over at Liquidity Trader. If you’ve never subscribed before, you can do so risk free for 90 days.

Below is the S&P index, hourly chart. The futures are currently trading where that little white circle is on the right. Crazy, huh? Gap and go. Gap and go. Perfectly normal market. If I recall my Edwards and Magee, I’d bet that these are exhaustion gap. But back when those godfathers of TA were doing their thing, the Fed wasn’t pumping $100 billion a month into dealer trading accounts. So, just in case there’s any doubt, I always fall back on Rule Number One, “Don’t fight the Fed.”

S&P 500 Chart

Yesterday I wrote, “If they hold 3282 and start to move higher, then the target would be 3294. And if that’s cleared, look for 3306.” Voila. Yesterday’s high was 3307.

Today, given where the fucutures are now, I’d say that the 5 day cycle projection range is 3325 to 3345. A convergence of old trendlines suggest resistance around 3330. If they get through that, then the target would likely be 3350. If they sell them from the gitgo, then 3312 should be support. If that falls, bears would get the ball back to around 3297.

Have fun trading this monster.

For the big picture, and my tactical recommendations, see the weekly Technical Trader report.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today. 

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