Thanksgiving week was, as expected, an up week for US indices. As written in last Weekly Analyses, RUT breakout would be a help to push SPX higher. We got that breakout, and that is why RUT chart is first in this Analyses. DAX futures had an up week, while DAX Cash Index had a down week. Price is still in a range. Another up month on both markets, buyers are still in control on large time frames.
In the week ahead:
On Monday we will have Chinese Caixin Manufacturing PMI, ECB President Lagarde will speak, US ISM Manufacturing PMI. Nothing on Tuesday, then US ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI on Wednesday. OPEC Meetings and Eurogroup Meetings on Thursday. OPEC-JMMC Meetings, ECOFIN Meetings, and as always in first Friday of the month -> Non-Farm Employment Change and Unemployment Rate. Other than this scheduled economic releases, there will be also a meeting between Trump and NATO leaders next week. US-China trade relations is still the most important thing, with possibility of "Headline risk" for every day.
Chart #1 - RUT Daily
After three weeks of coiling in the bull flag near range top, Russell 2000 made a breakout. Supportive for further upside of SPX. It also made a move above May spike high. As long as buyers are holding above 1600, it has a chance to move higher, toward ATH.
Chart #2 - ES_F Daily
Buyers clearly in control here on SPX (ES_F). Light orange rectangles represent ranges of false breaks above prior ATH levels. Blue rectangle represent current up leg, that last from October 3rd. This is 300 points up, without making a decent LTF horizontal level of support. Prior ATH around 3030 is still the most important one, IMO. Last resistance trendline produced a 40 point down move after the first test, and now we are again in the unknown territory, without any kind of prior resistance above. We can only do calculations now, using various tools - but predicting a top here and now is a fool's job. Same like in Jan 2018 - look at the LEFT of this chart. Until market started to move down, we could only guess the top. Market is due for a pullback, but timing it right could be a tough one.
Chart #3 - VIX Daily
Generally, this kind of grinding higher is not good environment for short term trading. But markets are cyclical, so volatility and better opportunities will come back. VIX is also stuck in a narrow range, spending time between 12 and 14.
Chart #4 - DAX Weekly Cash Index vs. Futures
Down week on Index, up week on Futures. Coiling in the range.
Chart #5 - DAX CFD 240 min
After a break above 13,000 - area not tested in RTH session - DAX spend the rest of the November in a 13,110 - 310 range. "Look above and fail" to 13,380, making a yearly high, expected move after a false break of well defined range would be to go to the opposite end, and we got that. Later we got a "look below and fail" also, with again trip to opposite end of a range. Both false breaks were 70 points.
What now? IMO - we MUST be open for both scenarios. Decisive breakdown, and decisive breakout.
Bearish scenarios - of market going down from this range - are on this chart, where "X" marks Fibonacci retracement from the ~11,820 swing low, to the 13,380 yearly high. Retracements are inline with horizontal levels of support. But first, we have 12,960-13,020 area and unfilled gaps there (look at Chart# 4 from previous Weekly Analyses). Then 38.2 is around 12,800; halfback around 12,600 and 61.8 is below 12,460. Bigger downside only on break and hold below 12,500.
What about bullish scenarios?
Chart #6 - FDAX Daily and bullish scenarios below
Possible Bullish scenarios, that can come IF this range breaks decisively to the upside.
STAY OPEN for both possibilities - breakout and breakdown from the current range.
Biggest losers traders will make when they are "married" to a single scenario, which turned out ot be the wrong one, then stubbornly trading that idea, instead of trading their capital. Don't be involved in a "death trade" - I have seen traders wanting to make 50 points on DAX, only to later close their position for HUNDREDS of points losers. Know YOUR invalidation point for each trade, and use a stop loss always. "Death of a thousand cuts" is also a common thing - trying to pick top or bottom on trending instrument via counter trend trades with artificially small stops. Like constantly trying to short SPX, for example.
Short term traders like me - we are going to favor downside scenarios, because those are the ones that can bring us more volatility, bigger daily ranges, more opportunities and bigger winners. But just because we want them, it doesn't mean they are the ones that will play out. We are going to watch tempo, momentum and possible changes of the narrative in markets, adjusting to the moves, and until a decisive break - trade zone-2-zone.
Stay safe.
StrayDog.
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