Market Report: Setting Up the Next Decline
Last week I left readers with this idea
Well fast forward and it seems we are setting up for the next move lower in what I suspect is a 5th wave towards lower prices.
This week saw some crazy swings on 5% of more on the market each day, those sorts of swings are creating some great trading conditions and the traders that are switched on and understanding price action are taking full advantage of the moves.
One issue is account size vs trade size, in these sort of conditions, traders need to adjust stops and size of the trade, for the size of the moves we are seeing as if you get on the wrong end of some of these moves, they can be devastating to your account. That being said, these conditions are where you can really make some great trades due to the swings we are seeing on a daily basis.
Currently I suspect we have been working a 4th wave, from the FOMC spike, and from there appears to be a 3 wave move which has finally reached our upper targets.
We went into this went this week looking for the end of wave [iii] and then trying to find a buying opportunity for wave [iv], although some of the swings we saw made conditions a little nerve racking, t we had a plan, as towards the end of week I suspected a trap as a "[b]" wave setting up.
I showed members this chart, and we were aware that the market could really let loose and burn the shorts that sold the lows. I had a felling the market was not finished with the bears that got in too late to sell the market and I felt the market was trying to set up higher before a resumption of the downtrend.
As you can see the flat became the working idea, although as the move pushed higher we were watching both ideas as one by one our upper target levels around 1163ES then 1175ES was hit, and eventually above 1183ES.
By the end of Thursday there was a potential to start a move lower, however some firm buying was seen from one of lower areas at 1147ES which then proceeded to push higher and create a small gap up, which anyone that has traded the past few months knows that Fridays have become a very slow day recently. So it was back to buying dips above 1167ES, and that holds true going into Sundays open, as I still feel above 1167ES then the market wants to test the 1200ES area.
A closer look at the gyrations suggests that we could see a pop on Monday and a reversal, but a chance for aggressive ES traders to buy above 1167ES and look to trade throughout the globex session and potentially see a gap up on the SPX cash market.
We do have a trigger point should see weakness in globex and in the European session, but until that is triggered I think we have a bit of upside left for this current ideas of a 4th wave rally.
Looking at volume analysis of the SPY volume, it tends to suggest we have a weaker trend in what I suspect is a countertrend bounce against the heavy decline we have seen over the past few weeks.
It's now reached our target and appears to be a 3 wave advance which is corrective and aligns with our ideas of the bounce we have seen being a correction and what Elliotticians refer to a 4th wave.
If you look carefully the volume is declining and it's a normal characteristics of a counter trend move in a wave C of a ABC advance, generally you will see a strong wave A, and the wave C will be weaker, that suggests the move is a correction against the trend, in this case this current move fits in with the profile of a correction.
Unless Monday opens up with a very aggressive upside day, then we appear to be setting up for the next move lower and targets are towards the 1080SPX as there was a ES printed 1077ES in the globex session.
What was once support now becomes resistance, the NDX is back testing its previous broken support area.
Nyse McClellan Oscillator
With the McClellan Oscillator now re-set from over sold conditions it too is potentially setting up a reversal, as the 0 line will be resistance.
This pair looks like it is about to setup for an explosive move, only we have 2 working ideas, and until this pair makes its move there is simply no telling which direction its wants to break, but it should be a great move regardless.
I suspect over the coming days, likely this week that the market will break one set of support or resistance areas and confirm its intentions, then it's a case of jumping on board for the ride as it could be a great trade.
TYX VS SPX
A chart I like to use for timing of trend reversals is that of the TYX, what tends to happen is near reversals, traders tend to move in/out of stocks and bonds, and TYX tends to move a few days before equities reverse, and right now we potentially have such an occasion as traders were buying bonds as stocks were floating and grind higher, which again suggests that some traders trying to get out of stocks and run back into the safety of bond as yields pushed lower on Friday.
Looking at the European and US markets, I suspect the market is setting up for a new move lower, unless it surprises traders early new week, we could see a little bit higher and fill some gaps around the 1200SPX area, before I suspect sellers hit the tape again.
Targets are towards 1080SPX in what could be a better buying opportunity to last a month or so.
We have some key areas on the upside, should the market surprise us and put in an aggressive upside move early next week, then we will have to adjust our bias, currently I expect lower in a 5th wave, but will respect an aggressive move, should buyers decide to go on an aggressive buying spree.
Until next time.
Have a profitable week ahead.
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