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Stocks Break The Uptrend, Will Crash Return?

Stock Market Trading Setup for Tuesday, April 21, 2020

The ES futures have broken the uptrend line from the March low. Is it healthy or ominous?

S&P Futures Daily Chart 

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Yesterday’s post.

The futures have been trading in a between 2750 and 2833 overnight and in the pre market, down 47 at 2760  at 8:30 AM in New York.

This decisively breaks the trendline of the uptrend channel from the March low. It also breaks a shorter trend at a lower angle that evolved over the past week. However, it is still holding above a support level at 2745. I would look for a bounce from here, but if this level breaks, either this morning or later, the selling will probably increase.

The next support level would be around 2705-10. Then there’s air to about 2620-25.

In the event of a rally, look for resistance around 2800.S&P 500 ES Futures Chart

Rate of Change tuned to an 8 week cycle has edged to the sell side. MACD tuned to the same cycle looks toppy. Sell signals come typically on the first hard down day of a new down phase. Barring a miracle, these signals will become clear today. 

If this is still a bear market, we’re getting to the point that that needs to be proven by a real downturn. That could happen today. 

Again, this is for the perspective of one day only. The purpose of these reports is not to divine the longer term. If you want longer horizons, join me at Liquidity Trader.

Hourly ES S&P 500 Futures Chart

The downtrend has been orderly on the hourly chart since the breakdown of the downsloping range last night. The decline has reached support at 2750. There should be a bounce here, but it will probably be short lived, if it even happens.

The 5 day cycle projection on the futures is 2720.

If 2750 holds, then we’d look for downtrend resistance coming down from 2790 to 2760 between now and 4 PM in New York.

Hourly indicators tuned to a 5 day cycle frequency are still bearish as of 8:45 AM. They have reached levels where recent minor lows have occurred. But the key is whether support at 2750 holds. A brief rally would result in short lived buy signals that return the indicators to near neutral, where they might roll over again. Such a setup could open the jaws of hell.

ES Futures Hourly Chart

Reminder- I’m only talking patterns for a day here. This is not the big picture. If you want that story, you must subscribe. Risk free trial and all.

S&P Cash Index Hourly Chart 

The red bar at the far right shows where the futures traded overnight. It’s between 2750 and 2833. The futures suggest a cash open around 2740. That would crush the uptrend line from the March low, which is now situated at roughly 2790. That would be resistance if there’s a rally. The 2760-70 area should also be resistance.

The next support level is around 2720. If trading in the first hour is around 2750-60, then the 5 day cycle projection would be roughly 2730.

S&P 500 Hourly Chart

Join me on the Capitalstool.com message board today and I will update you there occasionally during the day. Feel free to join the “fun.”

“And that’s the way it is, Tuesday, April 21, 2020.” 

From coronavirus locked-in Zagreb, Croatia, good morning!  

Where have you gone Walter Cronkite? Our nation turns its lonely eyes to you.

Meanwhile, here are the latest reports from Liquidity Trader. 

Trust But Verify Gold

Gold has pulled back after breaking out of its trend channel. That’s usually a sign of a top. Now what?

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Try Lee Adler’s Gold Trader risk free for 90 days!  

 

The Illusion of a Stock Market

Short term cycles are due for tops and little pullbacks at least. If it doesn’t happen, it would be another sign that the long term cycles are back in up phases. But are these cycles, or just the manifestation of the power of the Fed to create the illusion of a market?

How do you trade it? With one eye on the ground and the other to the sky. Walk this way.

Technical Trader subscribers, click here to download the report.

Not a subscriber? Try Lee Adler’s Technical Trader risk free for 90 days!  

What Happens When Fed Makes Moral Hazard Permanent and Structural

The Fed’s massive bailout of Primary Dealers and its alphabet soup loan programs for all other big financial players, have now made moral hazard permanent and structural. Why worry about risk when you know that the Fed will always take you off the hook when the shit hits the fan?

How can we know how this will play out? How can we know if these loans can ever be repaid? Will they be repaid through inflation, perhaps hyperinflation? Or will the borrowers simply default if the markets and economy recover too slowly?

Then who will be on the hook for the Fed’s guarantees when the Fed must assume the losses? Who pays? Taxpayers? Depositors? Everyone, again through massive inflation?

Of course, there’s always a chance that everything turns out just fine. The world returns to normal in a few months. The economy bounces back, and all the trillions lent by the Fed gets repaid timely, with no financial price to be paid.

We don’t know, but there will be telltale signs in the weeks ahead that will give us a heads up.

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Expecting The Worst and Getting It

We expected the worst, and we’ve gotten it. But that does not mean that things will get better. The revenue trends had been strong. Now they’re awful, and spending is unimaginable. How can this be sustained? In this report, I’ll show you the data, and discuss how to handle what’s to come.

Subscribers, click here to download the 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, of blessed memory. 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 sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? 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. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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