Market Update: Save the Last Dance for SandP
The Dec 23rd update stated:
Next week, if the larger bullish pattern is to unfold from here, it must follow strict instructions. I would love to see a three-point dip on Tuesday, followed by an advance that lets no one on board. Early projections are 1445.80 and 1452.25, with any new high being acceptable.
As you can see, either way, Tuesday will be anything but boring.
Other than the three-point dip in the SPX at Tuesday's open that didn't happen, the last week of the year unfolded pretty much as expected, with a slow but steady advance. Looking for a new high, that is, not counting the previous week's high as the top, was the correct call because, even though it was a boring holiday week, the SPX moved up almost 18 points within the first trading two days. The next two were spent almost entirely stuck in a range until traders decided late Friday they wanted to get out before year-end and closed the week at an exact Fibonacci .618 extension off the week's low, and sitting atop two support trendlines. Again, the perpetual question at these lofty levels is whether the latest high was indeed the top. Has the market danced its last dance?
I'm sure the action in the last hour of Friday was fed by the emotions and sentiment of underperforming traders forced on the floor during the holidays, but, if you think that was nasty, you haven't seen anything yet! 2007 will be marked by choppy, intra-day reversals as the stock and bond markets finally confront some of their long-running inconsistencies, but if you have the correct setup, pattern, count or target in a market, then you'll know when a selloff like the one we got on Friday is actually a perfect buying opportunity.
For a lot of traders, though, Friday's late day trading is exactly how and why they lose money. As the previous chart shows, Friday's selloff could be a perfect B wave or 2nd wave pullback into a .618 retracement. Of course, for traders using a 2- or 5-min chart, it must have looked like sailing over the end of the world. Too many times, this type of selloff is a typical shakeout prior to a market rocketing away from you the next day, a move you obviously don't want to be short against. But, the risk of going long here, even if completely wrong, is tremendously narrowed by having Friday's decline behind you. This setup will be developed further for members in the forums.
Some of you may remember that several weeks ago I stated January 2nd was a good date to keep in mind for selling, and now here we are and I've just given you a buy setup. This is just another example of me letting the markets do the talking while staying vigilant for money-making opportunities. Of course, the second is now a holiday because of President Ford's funeral, but my general idea remains the same for whichever are the first few trading days of 2007 and the chart below illustrates my concern about getting too cute here on the long side.
Upward projections of 1445.80 and 1452.25 are still valid, with any new high being acceptable, but, as you can see, chances are great that if the SPX makes only a slight new high, the NDX wont. And losing 1404 can change ideas about reaching an additional high at all - it's quite possible Baby New Year will be born a bear! Of course, if the New Year's party goes on late and there is a new high we can get long into, that would be great, but, like any respectable guests, we wont be looking to overstay our welcome either. We'll continue to monitor sentiment and ending pattern divergences, and we haven't forgotten NYSE 9314 either.
Regular readers will know that once the 1360 target was achieved, I've been dancing with the bulls with one ear waiting for the music to stop. If I'm right, and it's just about time to go home, then these last moves can and will always be tricky, but there may be time for toe-tapping yet. We aren't looking to give readers a bias to what must happen, but given Saddam's execution and the Ford funeral, general sentiment alone might push us up Wednesday morning. If we get this type of dramatic reversal to early new highs, we might be able to start building a short position this week, or if not then, into the second week of January, because this new high would look like a top. Yes, the top.
Even if we are about to witness the last gasp of a 6-month rally, I don't want to assume anything needs to happen. We were, and still are hoping this past week started the last ABC run into new highs. As of Friday's close, there isn't much room for error, but the outlook hasn't changed. If correct, we should start the week going higher and put in a new high soon. What I mean is Friday's late drop might be a gift of a setup opportunity to catch yet another move to new highs, but, if the market smells weakness on the way up, that might all change quickly, Of course, these are the types of developments that are posted for members in the Forums in realtime.
And let me finally add that, thanks to the cooperation and community spirit of everyone involved, the first year of tradingthecharts.com has been a success! I've personally enjoyed sharing the time with all my subscribing members in the forum and chatroom, and look forward to working with them in what promises to be a very interesting 2007. Hopefully you readers of these updates have also been able to capture some great trades. To really capture what a weekly newsletter can never do, join the TTC forums daily for the incredibly affordable payment of only $50 a month.
Bonds continue to fall, proving our perfect call made at the high.
Since that call, 1 short contract in the 30-year bond produced a profit of $3800!
There was support at last Fridays close but only produced a gain of 14 ticks, before selling off again. I still feel a larger bounce is due here.
Grains continue to rally but I feel that it's not the start of another leg, but rather part of the correction. If correct, we will be much lower soon.
Silver continues to act heavy and we would still invite a small low before trying to bounce a bit. Be sure to read Joe's Precious Points update this week as he reviews his 2006 calls and looks to the new year.
Google reached our first target at 506 and has made a low of 455. Is it done or does it reach the second target? Stay tuned, we're about to find out. Goog is about to move huge one way or another.
If you've enjoyed this article, signup for Market Updates, our monthly newsletter, and, for more immediate analysis and market reaction, view my work and the charts exchanged between our seasoned traders in TradingtheCharts forum.
Continued success has inspired expansion of the "open access to non subscribers" forums, and our Market Advisory members and I have agreed to post our work in these forums periodically. Explore services from Wall Street's best, including Jim Curry, Tim Ords, Glen Neely, Richard Rhodes, Andre Gratian, Bob Carver, Eric Hadik, Chartsedge, Elliott today, Stock Barometer, Harry Boxer, Mike Paulenoff and others. Try them all, subscribe to the ones that suit your style, and accelerate your trading profits! These forums are on the top of the homepage at Trading the Charts.
Market analysts are always welcome to contribute to the Forum or newsletter. Email me @ Dominick@tradingthecharts.com if you have any interest.
Wishing you every happiness this holiday season,