Still A Traders World
I am sure by now most readers will be aware of the news and events this week.
Last week's article I left readers with the idea of a triangle on the US markets, and we should expect higher prices, as I was expecting a terminal thrust to launch higher.
Well that's exactly what we got with the help of the FOMC last week.
Anyone with experience of trading the FOMC announcement will no doubt be aware of the standard rule.
"The 1st move is usually the bluff."
Experience has shown me over the years to use that rule and trade accordingly around it.
I sensed a trap setting up just before the announcement, and posted this chart to members and not to get too aggressive on the short side until support was broken 1st.
As the general feel from traders and the markets, was a "sell the news" event after the FED announced its intentions.
I was more skeptical as I was yet to see a decent thrust higher to complete the pattern, as well as tracking the same idea of a triangle on the EUR/USD pair, so expecting a thrust higher on that pair as well, it just never looked right, hence my skepticism.
Call a traders feel, call it experience, something never felt right.
Well the spike down of the FOMC was a classic "the 1st move is the bluff" type of move, and setup a trap for higher prices.
Too many traders fell for the trap it seems, and the reaction from the pit was buyers stepped up, as the locals were trapped short and forced to cover.
Goldman and JPM have been outstanding buyers all the past week, as I can remember those two buying vividly, with a bit of help from UBS.
Simply put, the sellers were just not there, as I was hearing buyers stepping up in size, the locals tried to force it lower, but ultimately failed, and once support held, the market clearly setup the trap I was fearing just before the announcement.
I made it known to members in the chat room, that the 75ES area was important going forward. We were using that area the previous week.
[Nouf] but we can deffo use 75ES here as support to keep any Bullish idea
[Nouf] under 75ES is not Bullish
[Nouf] the market on ANY spike lower needs to hold the 75/77ES support band
[Nouf] careful getting Bearish if that holds as it can see a nasty reversal if it holds
[Nouf] no way do i want to be long under 75ES
[Nouf] 75ES is a big area
[Nouf] and today could see 30 handles in any direction
I was still bullish above 75ES, and made it known to members that we can use the 75ES area, bearish below, bullish above. The low was 79.50ES.
Well eventually the market ended up at the highs, and I went into the end of the day with 2 ideas.
Depending on a gap up over 85ES would let us know that the 3rd wave idea of the triangle thrust was kicking in, and the trend was pushing higher.
[Nouf] but if the 85-87ES area holds in Globex I think we are setting up
for a push higher in the more Bullish idea
[Nouf] if under 85ES and gap down tomorrow then wave iv of ED idea
We never even came close to testing 85ES in globex, that was a clue to get us to be looking higher or at least not selling the market, staying flat was better than selling the move on Thursday.
The large gap up on Thursday, confirmed the triangle thrust was the working pattern, and the bears were stuck once again and needed to cover which forced the move higher.
As of Friday we are still tracking the thrust, and it looks near completed, but we still need a reversal to confirm, and lower support areas broken, to confirm the reversal.
So I see little point in trying to pick a top here, as it can and may extend higher. But I still feel that a reversal is near, and the market is looking frothy up at these highs.
The sentiment currently is what I would want to see, and is classic of an Elliott 5th wave and I wouldn't be feeling comfortable about looking for a reversal, without the sentiment at these elated levels.
The VIX, I think as well could be offering clues, with the terminal thrusts seen in many equity markets, this has finally arrived at a target buy zone I have been tracking for a few weeks, so another clue that is suggesting a reversal, as we are back to levels where previous reversals have kicked in, with the 16 area, extremely important.
It's been common knowledge to most traders that the prior rally from Feb-Apr 2010, is of similar appearance and DNA, and we have been using this as a potential map, although this week in terms of price its met its objective, but has a further 5 trading days left in terms of time, but as we are near what I think it's a terminal move for the current leg up from the late Aug 2010 lows, it's very mature in this current leg, so the time window for a reversal is also upon us as well.
The real count and potential bigger move, gets decided on the next decline from here.
Although you would think that by listing to the media, this is going to new break the Oct 2007 ATH by the end of the year.
One of the most interesting things I found about using this chart is the red lines on the RSI, if you look back in history there have been very few occasions, where this has exceeded this area.
I had to go back to Nov 1996, to find the last time.
Overbought is an understatement, but overbought can stay overbought for longer than traders can stay solvent, but we are at prior areas on the RSI where reversals have taken place.
Furthermore, I have what I wanted in terms of price structure on many markets I am tracking.
My work does not simply revolve around one or two markets, I follow many, to get clues on the ideas that we are looking to trade.
Long term I have a few ideas I am working with, but they are reserved for members, but as I have stated in prior articles, macro counts are for show, and not really of benefit to many traders or investors, as by the time you find out you are right or wrong, 2 or 3 years has passed.
There is a big difference between trading a thesis and remaining stubborn, to actually trading the tape that is in front of you.
That's means trading up and down, as members have been doing over the past few months.
Should it really matter to which direction the markets move?
The last time I checked, if you get the direction right and it's a wining trade, you make money.
Or have the rules changed?
I left readers last week with the 2 options we were following, and as long as the 138 handle held, I was looking higher.
"We are working 2 ideas here, as long as price stays above the 138 handle here, I am looking higher going into next week, the DX virtually mirrors this pair, so at this stage it appears the EUR/USD pair has higher to go."
An early dip early last week came near support at 13850 and held well, from there I knew we needed to be looking higher, but the idea also became clearer, as it switched to the triangle option, and more upside was needed, as the DX also looked like the triangle had become the preferred option.
So I was working the thrust all last week for a terminal move, it had us looking higher until evidence of a reversal.
Fridays price action on the EUR smashed many crosses, and may now have indicated a reversal and the triangle thrust is finished, although I am working a potential flat as an option but that would still need back under 137 from here.
For both ideas, last week's high has to hold.
There appears to be a potential small 5 wave decline off last week's high, and encouraging for the US$ bulls and EUR/USD bears. So I think going into next week there should be some good opportunities on this pair.
Members will get to see this pair and many more markets that I follow, I tend to focus on the cleaner patterns and if a pair is looking messy or some confusion, then we go looking for something else.
That's the great thing about Elliott Wave.
If used properly and in the right hands, Elliott Wave theory is a great tool.
There are some good Elliotticians out in the trading world that can still use this technique, sadly it's been abused and the reputation has been tarnished greatly, due to some high profile Elliotticians failing victim to not respecting the trends in a market and not respecting price action.
I guess calling for crashes every month/week, does not help.
Any corrective rally from here ideally needs to be contained via the 14150-14170 area.
This was another pair, that we were tracking, as the equity markets was waiting on the FOMC to deliver its announcement, we still had this on the radar, and last week I was looking for a bounce into the 0.8820-0.8870 area.
Last week's chart.
This week's chart.
With the weakness shown in the EUR crosses on Friday, this further helped our positions in selling this pair, I am working a much larger idea, and depending on the eventual move lower, will help with a large term idea I am working with.
But as I have repeated before, those macro and large term counts are not really where you make the money, nor is it where Elliott Wave is useful.
Short term charts like the charts above, is where you make the $$$$.
I will leave the macro calls to the "hero's" that are looking for the chocolate teapot awards, the 15, 60 & 240 min charts are where Elliott Wave is useful.
Depending on any follow through here, will tell me if we have a more substantial decline kicking in, or an alt count is that it's a b wave low and a reversal to above last week's highs is coming, but I have some areas above, that until busted, I want to focus lower over the coming week, against those areas.
Like last week, this was a welcome bonus and just keeps delivering the goods, once it starts to get complicated and stop throwing up clean patterns, we will toss it aside and look for something else.
"If it ain`t broke why fix it?
In these markets, we grab what we can, as its tough trading conditions, with POMO`s and free money and news from every corner of the world daily, its making trading very difficult, as I am sure many readers will attest to.
With a little bit of effort, there are setups out there, you just got to go and look for them, but that's we do day in day out.
ZN 10 yr note
We have been tracking this ED (Ending Diagonal) idea for few weeks now, and this is something I want to take into next week, as if the expected outcome (as shown) transpires, then I think there is going to a terrific trade setting up. We have a level a bit higher up where we can control risk, so we know where we are wrong on this setup.
Do you think Ben Bernanke is watching this setup?
I am far from any expert on mortgage rates and yields, I only follow patterns and price.
I do know that the FED can't control the market, and it's the market that will set the rates, and whilst the FED may be able to suppress rates for a short while, eventually sentiment against US treasury paper is going to reverse and cause havoc on the FED`s ideas of trying to suppress mortgage rates.
Already we are seeing the spread between the 10 & 30 yr distort, as buyers appear to be shunning the 30Yr Bond and moving down the curve, as seen in this chart.
So I think attention now to Bonds and the 10yr note is warranted, as both look like they could be on the verge of a breaking down.
The FED thinks it can have its cake and "eat it".
By printing more money the FED is trying to suppress the long end of the curve via the 30yr and 10 yr paper, and keep the stock market elevated at the same time.
This may work in the short term, but eventually something is going to give, and currently it suggests the FED is going to come unstuck with trying to suppress yields, either the stock market is going to break down or the long end of the treasury curve is going to break down.
Maybe even both?
Looking into next week, I still think we are likely to see a reversal from these levels in many markets, but confirmation will be needed 1st.
It's the next correction/decline that will help determine the larger idea on the US markets.
Already I am seeing some patterns that look like they could have the makings of a reversal, but as long as the markets keep throwing up patterns to trade.
We will keep trading them at wavepatterntraders.com
This is what we do week in week out. We go looking for setups to trade.
We don't marry a trade or thesis. We look to trade, not sell a thesis of the DOW going to 36,000 or 3600
Or looking for a crash for month after month when the evidence was not simply there.
I guess those bears found out the hard way this week on those crash ideas.
But if the bears had looked at the markets objectively instead of through the lens of a bias, there was simply no need to be selling the rally from Sept 2010, the FX markets well telling you this.
Eventually calling for crashes, you might be right, but in the meantime, you could be broke from those failed attempts.
Understanding price action is not that hard, proving you are prepared to accept you are wrong in your ideas, and adjust your bias.
A bias is a good thing, as it shows you have conviction on the trading idea, but you also need to respect where you are wrong in any idea.
Trade the tape you see, not what you want.
It still surprises me even now, that many cannot adhere to those rules. Trading is about looking at the market objectively and deciding if the trade is worth putting your hard earned money on the line.
Understanding why you are taking the trade and having an edge, and above all knowing where the idea is wrong.
Until next time.
Have a profitable week ahead.
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