Market Report: Ready For the Next Wave Higher?
The corrections that I was looking for finally started to correct last week, although it started a little later than I initially figured, it finally caught up to the other markets.
I have been using the forex markets for a while now for clues to the cycles and wave patterns with the US markets, we went into last Sunday looking for a reversal on the ES e-mini and head lower to what I think is a 4th wave pull back from the June 2012 lows.
As the market has started to pull back, it has amazed me how quickly traders had turned bearish, just after 2 days I was seeing messages of SPX at 600 on social media websites, it's not even broke support under 1400SPX and traders are looking for the SPX at 600, I just have to shake my head at this sort of thinking, its dangerous to have a bias looking out that far, there is a lot of points between here and 600SPX, but after 20 handles of decline we had figures of 600 being floated around the internet.
It's a good job we follow what we see and not what others post or try to make vocal in the media. There were many reasons this past week for why the market started its decline, but we simply were not interested, as we had already been looking for a pull back towards 1420 on the ES e-mini contract.
Monday had us looking lower way before the market started to decline, the media blamed the bad economic reports, I just say it was expected so it was no surprised to us, and I had a target of 1420ES penciled in although it could run lower towards the 1400ES and still be fine for what I am expecting.
So the week just gone just chopped lower as it made its way to the target zone, although I don't think its quite finished yet and a bit lower towards 1420-1420ES area would I suspect create a nice low risk buying opportunity, members are aware of a key area below, as long as that area holds we remain bullish with the expectation of a new high to come towards 1500-1510ES.
Now if the market breaks our key support then we will need to switch bias and follow the markets lower, but I still feel it's too early to write off the bulls at this junction, not only were we looking for a decline in wave [iv], we also feel looking at a very similar market, it supports the idea of a 4th wave pull back.
6C CAD futures
One market that I feel is extremely valuable to those traders that trade the ES e-mini is that of the 6C or CAD futures.
If you look at the overlay chart you can clearly see how well that they move together, and it's the decline of the 6C contract which supports the notion that the pull back is a 4th wave and not something that is bearish, as the decline is not impulsive and shows no aggressive price action for me to consider that we should abandon ideas.
It's of no surprise that both markets are pulling back, we expected it, but it seem most of the trading world have got them themselves in a frenzy looking for some great big crash around the corner when we see a 30 point decline. Still I guess things never change.
If the market breaks our key support then let's talk about crashes and serious declines until then I will not be throwing a way an idea based on other people's opinions, as traders we should follow price and patterns not the so called professionals' that you see on the media shows on TV.
I initially switched to this idea around the beginning of August, as I was originally looking for a corrective advance, but as the market continued to power higher I knew something was seriously wrong.
Clearly a corrective move should not be taking on the role of a continuous bid higher, hence we switched to the impulse wave count and I suspect we would see a 5 wave move from the June 2012 lows.
Now equally I will say that at this point there is a bearish wave count that says the decline is over from the June 2012 lows. However I don't subscribe to that count, as the decline so far appears to be consistent with a 4th wave pull back.
I suspect we are at point 8 as shown in the overlay chart above, seeing as we are still above key support, it seems premature that we should suddenly all turn aggressively bearish based on a 20-30 handle move.
To non biased Elliotticians who actually take the time to look at price charts and not force a wave count, and have some respect for the rules will note the sloppy wave structure on the 6C chart, hence I suspect that as both markets track each other 6C could well be sending out the message the decline is wave [iv] and not the start of a serious decline.
But that aside we know where our ideas are wrong and we have been looking lower this past week, but we are now hitting areas or I should say getting very close to the target areas on both markets, from there we will know for sure.
Short term I suspect we could see a bit lower, although not much lower potentially between 1410-1420ES if a gap down on Monday, there I think buyers will step up and there is a floor of support.
Below 1440ES keeps us looking lower, although we have been using the 1436ES area this past week as our bull/bear line.
Short term traders can look to sell under 1440ES, and targeting 1420ES, but it's really based on the decline, but we are still confident at this stage that if the market can find some buyers lower down it can make a strong bid higher towards a higher target above 1500ES.
Break our key support areas; it will change the dynamics of the medium term picture, but until that happens I don't want to waste energy looking for something that has not happened and no sign of that happening yet.
I have been using this idea for a number of months and its one of a few ideas we are watching, but it still requires a new high to complete the move from the June 2012 lows, so the current decline still fits in nicely for wave [iv], then move on higher in wave [v] to make new yearly highs to around 1500-1530ES.
As an Elliottician I find it very difficult to label the advance as an impulse wave as the only real way I find acceptable would be in some sort of large 3rd wave and you would be seeing the strongest part of the move now, you are looking at targets well in excess of 2000 on the SPX, but then it would still be pushing higher anyhow, so regardless of the very bullish case both ideas expect higher prices.
I tend to favor the advance as a corrective set of waves based on my interpretation of the preceding waves prior to the decline that started from March 2000.
So on a new high around 1500ES it is at that point I am looking for a substantial decline and a return of the bear market, presently I don't have what I would consider a completed wave count, although if by some chance the market has topped and did break down, I would be using the short term charts anyhow, and we can always find ideas on the daily perspective later, but if I had my way I would like to see the current decline end shortly (as wave [iv] as shown) before a setup to carry the market most likely towards the end of the year into the Jan 2013 time frame where I suspect a significant top will be made around the 1500-1530ES area.
I left readers last week with an idea on the daily perspective that I think with US stocks needing a bit higher; we could see Oil make a run to test the $115 again.
If Oil was to see the $115 area tested, it's at that point where I think that US stocks would be near their Oct 2007 highs and finish the idea shown above around the 1500-1530SPX/ES area.
Oil has bounced nicely from the $88-91 target I mentioned last week and showing a nice weekly bullish hammer from the lows, it's very important that the bulls defend those lows and we see some strong upside price action above the $94 area.
It's the next chart that I want to show readers the important of the relationship between the Canadian $ and Oil, as I suspect the 6C market is declining in wave [iv], the divergence we have seen over the last few days could be an important clue to the fact that 6C is about to reverse.
You will note that Oil did not follow the 6C contract lower on Friday, divergence? Perhaps, but if both markets can rally higher next week and 6C puts in the suspected wave [iv] low, then I strongly feel that Oil will move higher as seen in this overlay chart.
Now if we add the ES e-mini contract to the mix you can see how all 3 markets are important to each other, presently I don't see enough clues on the Canadian $ or Oil to suggest those 2 markets have broken down, so if 2 important markets that track the ES e-mini are suggesting upside or patterns that could suggest more upside, then it seems reasonable to me to look higher in the ES e-mini.
Presently the declines we have seen on the markets are of no surprise to us, we are well inside our target areas, so currently I don't have any real evidence to ditch the ideas we have been working with, if the ES and 6C can find a base shortly and a low is made for wave [iv], then I think all 3 markets can move higher and see those higher targets.
ld the markets have other ideas and reverse lower we have support areas to confirm the breakdown that members clearly are aware of, then we will need to join other traders and sell the markets should they show signs of breaking down, but as to date we don't see enough evidence to jump into our bears suits.
Until next time,
Have a profitable week ahead.