Market Report: Congestion and Chop
Last week I was looking for a reversal lower as I suspected the DX had put in a low and, as the heavy declines seen over the past week, suggested we would start a meaningful move lower in risk markets.
However, the remaining price action over the end of this week, is now suggesting that is not the case and bears are potentially on the back foot short term, as whilst we have seen some heavy moves to the downside, we equally have seen the bulls come back strong.
With the market getting hit from all angles, it's holding up surprisingly well, and when I look around the US markets, in particular one obvious pattern stands out, more so on the SOX and NDX.
In trends we have periods of sideways congestion, those patterns are normally a breather for the markets, until the next leg of the trend is in progress, well if you look from the Oct 4th lows, what we see is a potential triangle, either completed and ready to thrust higher from next week or a small dip then rally higher over the coming days/weeks.
With the normally bullish period upon us, this further suggests that the bulls are still in control from the move that started on the 4th Oct.
Whilst I still suspect it's a corrective structure, the initial 3 wave move that was made into 27th Oct highs, most likely was the 1st part of a move and what has been taking place is that of a triangle.
If you look there appears to be a text book triangle, and its probable that the low is on for the move and about to thrust to the upside, there is the potential to setup a "tri trap" but as these patterns are continuation moves, we have a marker to use now, being the lows made last week, so it appears the trend is still on-going from the Oct 4th lows and we took a breather.
Against those lows traders could look to buy dips if the markets pullback next week, as that last minor swing low is the risk point.
You can see how it's simply moved sideways and that a low could be now in for a move higher in what we refer to as a "thrust".
The overall look I suspect will still be a 3 wave move, but short term, as long as that minor low made last week holds, the trend is up from the Oct 4th lows.
We also have support now at 2300, and the 200 DMA sits at 2298.
It would need a heavy reversal back under 2300 to suggest other options.
When you look at the SOX, that too suggests more upside, and as long as the last minor low holds, the trend appears to want up.
There are still some open gaps outstanding that could be filled. We could see some weakness early next, if that is the case, I suspect that will be a buying opportunity, if any dip is weak and corrective looking, and with the traditional seasonal bullish bias period here, if the volume dries up, I suspect the market can see this grind higher.
From what I have seen and taking a step back, the market appears that it wants to see more upside and a triangle appears to be taking shape in many US markets. Which should see a "thrust" higher, to end the move from the Oct 4th lows.
If you just look at the technical setup, it is still suggesting a bullish trend from Oct 4th lows, the bears tried to get back under the 50 mark on the RSI but failed last week, and the bulls have come back roaring.
So baring something impressive on the downside, I still suspect the market now has un-finished business on the upside.
Now the only problem I can see for the bulls is a test of this resistance area, its failed twice already, but what has happened is that on both those occasions the bulls has regrouped and come back strong, now is the time to make their mark and power through the area of resistance above. If they do that I suspect more shorts to cover and create the fuel for the market to push higher.
Failure here could be a bad sign.
So the lows made last week are key, that's important for the bulls to hold, whilst you can see a small pullback early next week, those lows made last week must hold and that would setup for an attempt to push over the 200DMA and the trend line and see higher prices.
It's kind of hard to argue that this is a bearish setup, when you have the technical's aligned for a push higher.
It would need something special to reverse the moves seen last week; the bulls are still in control on the current trend from the Oct 4th lows.
Long term we still have the 3 working ideas I have posted in past issues, and nothing really has changed as we have not gone anywhere expect chop up traders, but we are still watching our 3 working ideas, currently we are more focused on finding a trade next week, not calling for crashes or the market to go to DOW 20,000.
That's not what we do, frankly I don't care what the markets wants to do, all I care about is making sure we are still finding good solid low risk/reward trades and we know where we can cut a trade short if it starts to look wrong.
One market I think could be setting up for a great trade over the coming months ahead is that of the DOW Utilities. It appears as a potential Ending Diagonal (ED).
If the US markets still have a bit more upside left in them we could get close to the [C]=[A] target, but we are aggressively watching this market now for signs of a reversal. Remember this is a weekly chart, so a potential swing trade setting up.
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Going into next week, against the minor lows made last week, I think the US markets are setting up for more upside, particularly the SOX and NDX, and what I suspect will be the termination of the move from the Oct 4th lows.
Although the actual duration could be a few weeks in the making, the technicals on the market point higher, so in light of the current price structure and the strength seen this week, any dips should offer a low risk buying opportunity against the last swing low made last week.
It will need something on the order of a climatic event to upset the market, similar to Greece going bankrupt, or in the order of that sort of event before I think the market would see substantial downside.
The market has had many things thrown at it, and it keeps coming back, that's a sign of strength, but I also think its case of there is simply not the sellers needed for the market to move lower.
So if you don't have enough sellers, then the market can grind higher, which is the case of what happened this week, as the bears have struggled to get the follow through they needed.
As long as any declines hold up against last week's lows, the market is pointing north and the bulls are still in control of the move that started on the Oct 4th lows.
Whilst I was expecting lower, and we saw some aggressive downside moves, the bulls have held the markets, and I suspect we are in a period of congestion hence the back and forth motion, but as the trend is up from Oct 4th, the likely direction is a continuation higher with the trend, hence you are seeing the triangle shape patterns we see in many US markets, more so the NDX and SOX.
If your bearish the markets, I would seriously respect the potential for the market to push higher 1st, in what I suspect could be the terminal move from the Oct 4th lows, in what is referred to as a "thrust".
Until next time.
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