Market Update: This Week Made Great Adventure Seem Boring

By: Dominick | Sat, Dec 2, 2006
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The Nov 18th update stated:

For next week, I have 2 ideas for the continuation of the current 4th before continuing on again to new highs. If, by chance, the market has its own plan, we have a line in the sand close by and stand ready to go short if we cross. But, give me SPX 1392/1395, and I'm long for a possible 1420 target!

We might be able to put in some type of high in the next week or so just before getting ready for the November Jobs report, followed by another Fed meeting. After that, Santa Claus and his famous rally might be stopping by for a visit.

Just when you had started to forget that markets could trade to the downside as well as up, the S&P opened lower Monday and never looked back! I was hoping to buy SPX 1392/95 but the selling never stopped that day. Of course, the entire exercise proved to be only a bear trap because the S&P rallied on Wednesday like Monday never happened. Talk about a roller coaster ride!

I'm starting to sound repetitive, but it just seems like this market will not stop whipsawing until every bear's spent their last dollar. From here, I'm getting the feeling that's there is only two ways the market stops rallying and finally capitulates to the bears. The first, which I'm not interested in seeing happen, is some world event, some terrorist attack or geopolitical violence, or anything. We can put in a new high, but something like that will make Monday's selloff look like kindergarten. The other way, which seems inevitable, global shakedown or not, is to have a final capitulation blowoff. I think the last 20-30 points of this move will be put on and removed within days if not hours.

At this point, as a trader, you need to be aware of the sentiment around you as the market continues to try and selloff. Wednesday was the first time in a while that the rally was accompanied by call buying throughout the day - every other rally had tons of put buyers. But this sure sounds like bears buying calls and if this is the case, then the end is near. The psychology is no different than when traders finally caved and bought puts on the March 2003 low. I think I hear that kind of story once a month, how everyone was so bearish on the 2002 and 2003 lows that they got brainwashed and lost lots of money. We're at the mirror image of that now.

The rally up from the Tuesday low gave me an expected ES target of 1408 into Thursday's closing bell, but the market once again sold off for most of Friday. The news will tell you it was the ISM report. Wrong! By Friday we had completed a move from the week's low to its perfect target and there was lots of call buying associated with it. That's the real reason. Still, by that time, puts were being loaded up on because the idea circulating again was a market crash. That's what they mean by "hard landing", right? A crash?

Anyway, I posted in the forum that a long trade at ES 1388.60 was worth taking for the next move up into our larger pattern, and the market makers of those puts must have been thinking the same. We closed our long position into the close at the 1398 target, booking nine points in less than 2 hours. I bet those buyers holding puts into the weekend aren't too thrilled.

For quite some time, we've had 1360 as the line to go short as a failure to any further advance. I raised the number to give readers a bit more of a short trade instead of waiting until 1360, but like I told the chatroom on Monday's selloff, I'm just not comfortable with it anywhere else right now. The number will remain at 1360, but will be adjusted in a heartbeat if need be. Plenty of trades will be executed before that, long and short, but the real trade is under 1360. IF (IF!!) we do have that blowoff reversal event, that changes everything. At that point, we'll have a much closer number to capture the whole reversal.

When Monday's selloff hit, I was far from being an aggressive seller. First, the pattern that was unfolding, if it was read correctly, was corrective. Second, I personally don't short into such a large hole as we had on Monday. We were short ahead of that level as we expected a 4th wave pullback, but let the few points under it go. Sure, there were a few points to be made, but the outcome wouldn't have been good. We would have been shorting and covering all week with losses, instead of the nice gains we were able to grab.

In the end, it was basically a flat week with a spread of 75 points between low and high swings, but the ideal environment for a forum like ours. You simply can't make sound intraday trades with such leveraged instruments just by reading these updates or from a weekly service. This market is much to quick not to have constant, real time views of the counts and patterns throughout the day, and that's exactly what we do at TTC. And to think, for only 1 ES point per month, the current $50 membership is a no brainer.

Another decision that didn't even really have to be made came after presenting this chart to the forum and chatroom. We were able to buy the NASDAQ futures, 4 ticks above the low!

Ah, but you want to know where do we go from here. Of course, next Friday we have the payrolls report, but that's just another nonevent to take up airtime and the waste the week away. After that, Bernanke and the FOMC meet on the 12th - another snoozefest ahead of that day. Grab some pillows if you're going to be watching that. And then . . . then we have Xmas. But what we won't have is the usual tax selling. The smart money has been long for the last 200 points. Anyone who bought the summer lows or got on along the way is not going to sell this market until January 2nd. Now that's a day to mark on your calendar!

Until then, we have 3 perfect patterns that support a few knee jerk reactions off the payrolls and the Fed, followed by plenty of Christmas shopping. On the downside, we have only 1 setup, and it's not a high probability yet. The patterns, along with price targets for each swing within it and the final target for the advance out, are reserved for members only. To everyone else I'll say this: Be careful next Friday because that day will establish the theme going into the Fed meeting on Wednesday. Don't guess the payrolls number or the Fed outcome - they don't matter. The reaction to the news is what's important, not the news itself.

This market is on a journey and it will eventually reach its destination. I've been bullish for a while, but I'm ready and waiting to turn bearish, even if many think it's the wrong move. The chart below of the Dow Jones Utilities average is further proof to me that my thinking for the course for the markets in the near future is justified. The chart shows a pretty Elliott count that has reached its 2 targets along a long-standing Fibonacci target.

Grains

I was looking to see a high in the grains. We might have that in place. Waiting on confirmation.

Metals

Silver invalidated its triangle as we expected and is now well above its September highs. Will gold do the same next week? Read Joe's Precious Points Updates for more.

Google

Google reached our first target at 506 and closed at 480. Is it done or does it reach the second target? Stay tuned.

Oil

Looks like oil made its low 15 cents above last month's newsletter target of $56.90. Up almost $7 from there!

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Dominick

Author: Dominick

Dominick,
a.k.a. Spwaver
TradingTheCharts.com

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