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When Bottoms Fail, Markets Crash 5/12/21

This is a syndicated repost courtesy of Stool Pigeons Wire at Capitalstool.com. To view original, click here. Reposted with permission.

When bottoms fail, markets can crash. So any time we see the makings of a bottom setup at the lower reaches of what is potentially a big top pattern, it’s time to be vigilant. If support breaks, shoot first, and ask questions later. If the market reverses after breaking support, creating a false breakdown, I consider the cost of re-entry at a higher price an insurance cost. An alternative would be to go out and buy protection with puts. Whatever we do, it’s a risk. That’s trading, right?

For those of us who are short, we also have to be flexible and nimble,

So here we are. Let’s look at the 4 hour bars for perspective. We’re right at the bottom of this ominous pattern going back to mid April on the ES fucutures. If this doesn’t hold, it could start a step down process where the red horizontals are the steps. Or it could crash right through those to the first significant support level around 3970, to start. Because we could very easily see a V launch out of this. It would not take long to get back to the top of this meat grinder range.

The 4 hour basis oscillators at the bottom of the chart, represent a nonstandard time input for MACD, momentum, and True Strength. They suggest that a cycle low is at hand, or at least near. But this again is the danger. When setups like this break down, crashes happen. Not all the time, but that doesn’t matter. Once is enough to wipe out a trading account.

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Our usual hourly view also suggests 5 day cycle bottoming, with a projection of 4102 having been hit. Indicators have turned up, creating positive divergences. On an hourly basis, these presage a rally most of the time, but again, not all the time. The challenge for the market here at 6:30 AM NY time is to break the downtrend lines at 4130 and 4145. Do that, and we’re looking at a likely upside reversal. On the other hand, break 4104, and it could be Crash City.

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Wall Street Examiner Disclosure: Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. No endorsement of such content is either expressed or implied by posting the content. All items published here are matters of information and opinion, and are neither intended as, nor should you construe it as, individual investment advice. Do your own due diligence when considering the offerings of information providers, or considering any investment.

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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