The Week That Was
The volatility is now starting to pickup, and as traders this is the sort tape you need to keep producing ideas.
Having a number of options and ideas, gives you an edge to trade other markets when your preferred market is sloppy and slow such as the ES (e-mini) has been for a number of weeks.
Anyone that has watched the markets recently will note the high correlation between the ES & AUD/USD, so whilst the bears have been screaming crash every week, and 12, 12, 12 to the downside.
Traders that understood what was happening were remaining long the ES and ignoring the crash calls as the evidence was not there to support it.
Correlations with the FX markets are a major factor in my work, and if the bears had actually looked around at other markets, instead of calling crashes every week, they would have seen that the FX markets were supporting the idea of higher prices for the equity markets.
The run up from the late August 2010 lows in stocks has been very impressive, and stocks are following the FX markets, in particular the AUD/USD and USD/CAD pairs.
So just using those 2 pairs alone could have saved the bears a lot of trouble, and saved traders from selling this market, but not a lot of traders or investors actually understand that.
It takes a little more that placing a few labels on a chart and calling a crash based on some Elliott Wave pattern, if traders and technicians looked around, you can actually find there are clues out there to keep you on the right side of the trend.
At WPT we went into the week with a few ideas, and I had been tracking an ED (Ending Diagonal) on the AUD/USD pair for a number of days going into last Friday, and felt that it offered a vital clue for traders trading the ES.
The actual spike came off Bernanke's comments which I thought was hilarious.
I never knew it at the time, as I only follow patterns and not the news, but a member confirmed it came from news, either way I thanked Ben Bernanke for completing this pattern and setting up the trade, as we needed a new high for a completed pattern.
Well it did just that.
You will note that it's an ending diagonal and a terminal pattern for a trend.
Now I was not concerned if it marked a high of importance. I was only interested in getting members a trade setup and finding a clue for those trading the ES.
Elliott Wave is only a small part of my work, I use other techniques based off fractals and fibonacci as well.
So using this setup I suspected weakness on the ES, as the 2 markets had been tracking each other well over the past few months as had copper.
I have been tracking copper and the AUD/USD for potential clues, to see if the run up in US stocks was the real deal or not.
As you can see just tracking the US markets alone would be causing you enough issues to the stand alone "crash Experts". If you actually looked at the other pairs and markets that I like to call the "risk trade".
You would have seen there was nothing really to confirm a downside reversal in stocks.
There were at times some clues, but as long as the trends remained up in HG and the AUD/USD pair and the USD/CAD pair pushed lower, US stocks were going higher, "it's that simple".
Traders were buying risk, and to sell in front of that was silly and suicidal.
I guess when you so committed to calling crashes every week, "you only see what you want to see", and those that have been calling crashes on this rally from early September have totally ignored what other markets are saying that are highly correlated to US stocks.
Don't take my word for it, look at the chart.
So why on earth would you be calling for crashes when other markets don't support it?
That's why it's important to watch other markets for clues and edges that help keep you on the right side of the trend.
That's what we do at www.wavepatterntraders.com
We look at many markets and use that information to form ideas, mainly over the weekend, where I generally post around 20-30 charts, giving traders and investors ideas of where I think the markets are going, and having many options gives traders the chance to trade other markets.
Monday this week had us looking for weakness in the AUD/USD pair off the ED reversal, although it eventually bounced back to a 786 retrace, that actual high aligned with the high in the ES, which at the time could only be counted as some variation of an expanding Diagonal much like the one into the April 2010 highs.
Tuesday opened down with a decent gap down, but we had support areas below that were needed to be breached, particularly the 66/8ES area and the 62ES area had been strong for days.
From Tuesdays high I could count a small 5 wave decline, and alerted members to the potential of a bounce, and sure enough the locals came in and started buying the market as the selling had eased off, it became a lot easier for the locals to lift the market higher.
A local is a market maker in the CME*.
We had some key resistance on the upside at the 70/72ES area to keep alive a bearish count if indeed the reversal had started, as the evidence on the US$ was supporting a reversal.
At the time I was seeing "risk" being sold across the board, so it was the real deal.
Well the reversal came at 73ES and a 3 wave bounce which is what we wanted to see.
So at this point we had a potential 12 bearish count or AB for a bullish count, as the objective was the 55ES area.
However this is where watching other market became very important as on Tuesday, I made it known that I was getting flat on everything, as I saw a 5 wave completed move in the DX, AUD/USD & EUR/USD markets.
What was importance of this?
Well it actually was a warning sign to traders to lighten up on the short side in case we only had a 3 wave decline, as the 1x1 measurement was at the 55ES area, we fell short going into the close by a couple of points.
So as we had a small 5 wave decline in an overall 3 wave decline, I wanted members to get cautious here in case of a trap and to lock in profits.
I noted both pairs as well as the DX had painted a 3 wave move near a 1x1 measured move, and the last move clearly had 5 waves, so if bullish setup on the EUR/USD and AUD/USD pairs, then we would be seeing an aggressive reversal in both those pairs and seeing the US$ reverse , as I am sure many are looking for the turn in the US$, but I was more interested in the bounce overnight in globex and we had a key area of 68ES which was tested a few times in the globex session for the ES.
The DX was already falling hard and by the US session open, and we were right at the caution areas in the AUD/USD, EUR/USD pairs as the ES was sitting at the 68ES area.
So it was do or die.
Even if you were still a bear, we knew at the time, break those important resistance areas and the market was going higher and another squeeze was in place, then the bears were on the back foot once again as they have been for the past 2 months, so there was little point in selling, either stand aside if you were bearish or look to get on the trend as it had made its choice.
By the close on Tuesday I stated:
"Same as the DX, we have 3 waves to a possible 1x1, so it can be a correction, or part of a bearish 12 12.
The bounce will tell us a lot, like the DX, although the decline on the AUD/USD pair can equally be 12 12 setting up and what I think is a small 4th wave can be a small degree 2nd wave.
So it's down to the look and size of the bounce.
If the bears own this market then we need to be seeing a choppy 3 wave bounce I would say no higher than the 13850 area, as above the area raises questions on the bear count, certainly above the 139 and I would be cautious if bearish".
Well the rest speaks for itself, the message was clear that the ES painted a 3 wave decline as did the FX markets.
So if a 3 wave bounce, what other ideas were likely for the SPX/ES?
Well at the close of Tuesday, I had been thinking about the recent sloppy price structure and when the markets are generally at the top of a trend it tends to get really choppy and move around in 3s which is either a triangle or ending diagonal.
Well by the end of Wednesday that idea became a serious contender, and I was tracking this pattern seriously as long as we held the 66/68ES area, I was still bullish as the pattern dictated it.
We needed a new high for wave iii, and we reversed nicely for wave iv in Thursdays' session, I made it known that I wanted to see the 68ES area hold, the low came in at just under, so it seem the "boyz" are tracking this as well.
There is another pattern that I am following as well, which implies a little higher than the target for the ending diagonal, but we will trade that accordingly, if the situation arises and the evidence supports it.
Right now as long as key support is held the market should push a little higher, and forget about crashes, although the market appears to be tracking this terminal pattern.
Next week that idea could equally be busted to the upside, we need confirmed breaks of support levels 1st to consider a move bearish alternative and right now although it appears toppy and heavy, we still don't have that in place yet.
So traders that are trying to sell and find the top, are looking for chocolate teapot awards, that's not my style.
Those that try and pick the top generally get run over, and wonder why they bust their accounts.
So next week should be a good week if the ideas go our way, but equally we won't marry a count if the ideas don't work out the way we want, we will adjust our stance and trade the tape we get NOT trade the tape we want , based on the evidence we see in many markets I follow.
This is what we do week in week out.
We don't marry a count if it's not working.
We look at many markets to gets ideas and bring those together to build a picture, so we take those ideas into the trading day each and every day.
Members are not left wondering what to do next, whilst an idea is busted as we know where we are wrong and need to get out of the trade or reverse and jump on the trend.
We have a chat room where members can stay in touch, as I scan many markets looking for trades and ideas and above all keeping members on the right side of the trend, and not suggesting crashes when there is no evidence to support that idea.
So if you are looking for a different approach to the markets and looking for ideas of where to find potential profitable trades, then take at look at the site and see if my work can help you stay on the right side of the trends.
I offer analysis on 4 major FX pairs, although occasionally I post counts on the many other minor or exotic pairs if needed for members, although that's limited to time and data.
EUR/USD GBP/USD AUD/USD & USD/CAD.
US markets include the SPX, ES, NQ`s and NDX and various ETF`s.
European markets include the FTSE and DAX.
You get to know who is moving the markets around, if it's Goldman or UBS or even if it's the locals in pit in the US cash session hours.
There is a chat room where members get to find out that information and are able to ask questions about the ideas posted on the site, and can share ideas and discuss counts with me and other members.
I also offer analysis on Gold and Silver and some of the other commodities' like Copper (HG) and Oil.
I will try to accommodate, if I have the data any members request, if a special market is wanted.
New Members can join the site for a monthly fee of $50, where you have access to the current ideas.
I post approx 20-30 charts a weekend so you are fully prepared for the coming week.
You will also get to access my previous work for the past 2 months, as the site has only been open for a short while (although I have posted around many forums over the years and traded Elliott Wave for longer than that).
Currently I am offering a trial period for 2 full weeks for new members to try the site out, and see if it meets your requirements, if you find the site is not what you want or you don't find any benefit in my work, then drop me an email where I will be happy to refund your payment.
So you really have nothing to lose, as you get to access my current work and ideas and if you find no value then simply ask for a no questions asked refund in the 1st 2 weeks from the date you start your membership.
* I have permission to post occasional written comments in the chat room. I have been a subscriber of www.tradersaudio.com for a long time, and will not trade the ES contract (e-mini) without it. It has provided a massive edge for me over the years, and is in the author's opinion an extremely valuable tool for the full time ES or Spoo trader. Knowing
So until next time, have a profitable week ahead.