Market Report: Long Term Ideas US Markets
Sheeshhh amazing price action this week, but very difficult to trade, without exposing yourself to a high level of risk for the gains, the market gapped up in Sundays globex session nearly 20 ES points then never looked back.
Even once the market rallied above our key 90ES area, it failed to give much in the way of a pullback that was worthy of putting money into a trade, although we tried on 2 occasions to get long, the very fact the ES pulled back to insufficient levels made this week very problematic to long.
It reminded me of the Oct 4th rally that was a similar rally where it simply left most behind and unless you were willing to exposure yourself to a high level of risk the trade pretty much left many behind.
With the DOW putting in its 2nd best week in terms of points in its history (as per media), it's no wonder many bears were forced to scramble to cover shorts.
It does make you wonder if the deal was already in the works over last weekend due to the large gap on the globex open, at the time, I really couldn't find any news to justify the gap up, and now that the "world bank news" is out in the open, it kind of makes sense why the ES never really sold off on a pullback, well not as much as we wanted, after missing a fill at 75ES, the market took off again and really stuck it to the bears, the market never gave much in the way of a decline for the bears to get out of shorts.
You can see the lack of corrections in this current suspected 5 wave advance. which made trading this move difficult as it pushed higher, we switched our bias back to be bullish after seeing a 5 wave decline on USD/CAD and 5 wave advance on AUD/USD, but getting a decent fill was harder than I would have liked.
Thus it pretty much left us out to dry until we could find an entry, we tried to get in on a 2nd wave pullback and even a 4th wave pullback, but as mentioned, without exposing yourself to a high level of risk, the trade to get long was a poor one, and one that I never thought was worth the risk.
Its one thing to make a call on the direction of the market, and another to actually make $$ off that call, direction is the easy part, it's a 50-50 bet, but getting the fill and the stop correct is far more difficult with week just gone.
I see way too many charts showing direction but not enough importance on risk management, there is little point in risking 20 handles for 25 handles, the risk/reward is poor, with the way these markets move, a trade setup will be around the corner soon enough.
Slowly the market was forcing us back to look to the short side, short term, although I suspect going forward the market has probably got higher prices on the cards and a big big decision to make over the coming few weeks, one that will change the tape for sure going into next year.
Still Friday ended up being a decent day for us; we managed to pull a rabbit out of the hat and got on the end of a potential reversal in the ES and EUR/USD trade.
We had 2 targets one being 55ES the other 63ES, it was the latter that was hit, and got us short, as we suspect we ended a 5 wave advance, the world bank news kick started a 3rd wave, and Thursdays' chop was a 4th wave, so we were looking for a reversal off the NFP, which it appears to be taking place.
So going into early next week, we are still looking lower, but suspect any decline is a dip, and a buying opportunity, as our immediate bearish idea last week got binned as soon as we pushed above 90ES, members knew we did not want to be short above that area and more so not long USD/CAD below 1.0300, both the AUD/USD and USD/CAD told of the reversal, but I can't say I was expecting Bernanke to actually come out and do his thing. Still we move on to the next set of moves.
Readers will note the continuous flip flopping that we are doing, one week it seems we are bullish the next we are bearish, which is correct, the market is whipping us around as its doing with many other traders, the environment you are in is a nasty set of moves and whilst it remains that way and no trend is in motion, it's a traders environment and ideas are getting moved around, as there is no clarity on the direction just yet.
Even with the Bernanke stick save, this has been poor against other risk markets, and setup a great trade into our area of focus at 13550-136. Thought out the week I mentioned to members that I still think this pair is a sell under that area.
We never even needed a wave count to find this trade, although shorter term there was a triangle and the thrust upwards into the NFP finished the setup, but the advance was very weak and corrective looking and held inside this channel.
Although it sure helped, when the rumors came over the wire that the Republicans were going to veto funding for the IMF, or something of that nature. But the trend is still down as long as it follows this trend channel. News or no news, price still is trending lower, and clearly traders are not as keen on the EUR/USD as other markets.
So if any republican member of congress is reading this article, I thank you as you helped our shorts on Friday. It made a rather boring week turned profitable right at the end of the week, it was a very tough week, but we managed to get something right at the end.
When you look at the EUR/USD pair against other risk markets, it's clear that traders are front running the politicians and leaders in Euro land to do something next on the EU summit week, as the divergence is huge between the ES and EUR, so we have a great arbitrage as well to follow, as I don't think that is going to stay that way for long.
Whenever I run into a series of moves we have seen over the past few months, I always try to take a step back, with the craziness we have seen the past few days, it's a good idea to take a look at some ideas and see what the future path could hold.
The daily picture don't really lend itself to help much as our 3 working ideas are still in focus, in fact we have 4 working ideas, but for the simplistic view I will show 3 ideas, one idea is the common wave count that I think most main stream bearish chartists are using, and it seems most of the blogger world.
The others although I have put in print before, one potentially at a point in time that could seriously ignite a serious move higher and no one is watching it, well no one in the bear camp.
Bear wave count
The bears have this as a top in place, and a multiyear high that won't be surpassed for a long time to come, but it looks unfinished as it needs a move towards the 1300SPX area, or at least above 1293SPX, now I suspect the daily trend lines will offer resistance as this climbs higher into the 1300-1320SPX target band.
Failing to see a reversal from that band of resistance, is going to cause the bears a lot of trouble and this pretty much as far as I can see is where the bears have to deliver or they are in serious trouble if you see a move above 1320SPX especially with strength.
I am not a fan of this wave count as whilst it looks like a 5 wave decline, into the area marked wave  when you look at it more clearly it don't count well at all for a 5 wave move, it's got some many issues, but sometimes we are forced to count poorly constructed waves if price action confirms the wave idea.
So a small pullback is needed then push higher towards 1300-20SPX is my best guess atm.
WXY wave count
Now this is my own personal preference and that we are working an [X] wave and from the Oct 4th low a series of choppy corrective moves, whilst they have been strong in places, they still count best imo as a series of 3s, I have real difficulty with the move into 1292SPX as being some sort of 5 wave advance.
So the same targets as the bear wave count but not as aggressive on the downside, it's my personal belief atm that we still have a date with the Oct 4th lows and we are tracing out a variation of an [X] wave, once finished should head lower.
Again a strong move above 1320SPX is going to cause serious problems even for this idea, and push us to an idea that I don't think many are following, but I don't have any reason to think it's not viable.
I originally had the [X] wave in at the last swing high at 1292SPX as the decline was a strong move, but clearly Monday's price action was too much to consider further downside, hence we are still in this large range that is causing many traders distress as the market has no direction.
Maybe Bernanke saw the 200DMA on AAPL ;-) and decided he needed to give the nod to Wall Street.
Who knows what his reasons were for stepping in as he did, but he changed the short term picture for sure, and he maybe changed the long term picture, we won't know for a few more weeks as we fight over this area.
But we will continue to do what we do best and find trades on smaller time frames and leave the longer term ideas to fight it over the coming weeks and months.
Bullish running triangle
The market has found a low and about to start on a new bull leg higher, whilst it may be hard to believe now; staying strong above 1320SPX is where the market can turn from being in a bearish trend from the May highs into something that is going to see the 2012 become one big bull parade party.
This is what I am referring to as the market coming into price zone that is about to make a tough choice, with I suspect the 1320SPX being a key area that makes a decision.
Whilst it's not my own preferred idea, I still think the Oct 4th lows need testing; it makes sense with the current moves we have seen over the past 18 months.
Since April 2010 the market is up as I write this article a grand total of............... 24 points.
So basically we have not gone anywhere, other than whipsaw traders for the past 20 months.
The character of a triangle is a bunch of whipsaw and gets traders into frenzy, bullish at the highs looking for the breakout higher, and bearish at the lows looking lower.
Well I suspect you could claim that to be the case.
So looking ahead I suspect we do have some key areas for the bears around 1300-1320SPX. They need to defend that area for either bearish idea. Or the bulls could be about to steam roll the bears.
Make no mistake we are coming into a key setup and one that I suspect will decide the coming months ahead, the reward for a reversal around 1300-1320SPX is huge as either the bear count or the WXY count suggests a test of the Oct lows. The risk to find out is small, as a strong move above 1320SPX will question those ideas.
With Mondays gap up and continued rally all this week, the range is back in play, it seems one week it's a bullish setup the nest it's a bearish setup, so going into early next week, we think some weakness
The market is also looking for the ECB and the EU summit this week, to do something about the European situation, so another series of events that could shape the tape going forward, but from a Bullish perspective, I think the bulls now need to defend that low they have just made at 1158SPX.
One crazy set of months over the last few months I don't think the market even knows where it wants to go, looking at the swings we see on a weekly basis. The environment is a nasty market for sure, but we keep our gloves up and look for the low risk trades. Trade selection is paramount and keeping a level head is everything in this sort of environment, and above all, know where you are wrong.
Remember: "If what you expect to happen doesn't happen get out!"
Until next time.
Have a profitable week ahead.