Market Update: Anything But Random
It was something of an intense, emotional close to the week as indices spiked down to levels that left bulls dangling on the edge of a cliff but not enough to instill overwhelming confidence in the bears, even as news and economic data continued to unfold in their favor. The idea of a bottoming process has taken root in Wall Street but fears the economy could be heading towards a deeper than expected recession and the realities of a bear market keep alive the prospect of new lows.
Of course at TTC we don't rely on such conceptions and base our trades on evidence in charts, many of which still suggest the market is closer to near term support than falling over the proverbial cliff. That said, on Friday we attempted to buy a bottom in the 23/20 area but were stopped out as the market fell to 1313. Seeing prices attempt a modest bounce into the close, however, has us looking to Monday's action to clarify the situation.
The above chart is an example of the big picture information members receive at the start of every week to orient their trading. It's also an illustration of why Elliott wave analysis has not been the most effective way to look at this choppy and indecisive market. Eventually there will some sort of capitulation in the form of a huge move in one direction or the other, but with both counts coiled ready to spring, wave-counting alone leaves a trader on the sidelines or, even worse, guessing.
At TTC we avoid trading blindly by using our indicators, our collective knowledge of many markets and techniques and, as last week's update explained, our proprietary targets: da numbas! Shown in the chart above are two of our most important target levels recently. Remember 1333 is where we initially took profits after the buying the low at 1256. We said last week that getting past 1360 would trigger a massive rally but weakness there would be trouble for the bulls. Sure enough, Monday's huge short-covering fiesta failed to decisively take out that level and brought the market down into support at our 1333 level. Certainly the action on Friday underscores the failure at 1360, but seeing these numbers return week after week is a compelling argument that contrary to popular belief, these markets are not simply random.
After Wednesday's negative close near the lows, and after bouncing up off 1333 in overnight trading, the cash markets opened Thursday with a gap higher - despite no real news to trigger the move. Actually, the news was rather dismal, with GDP showing an anemic economy and a major private equity buyout on the ropes. Though we respected the bounce off our target level, recent history suggested the cash indices would have to at least go back and test those levels. Making that trade even easier were our proprietary trend cycle chart, particularly the 60-min chart shown above. This relatively slow-moving indicator rarely leaves a sweep across it's oscillator unfinished and the gap up would have caused it to do just that. Given the circumstances, members were advised to be prepared in case the opening was reversed, which is precisely what occurred.
On the other hand, support in our other relative strength momentum indicator coincided with a retest of 1333, suggestive of at least a scalp buy. As it happened, the market rallied off 1333 to the highs of the day, as shown in the chart below.
As you know, Friday's market moved below 1333 and violated all expected support levels for a potentially dramatic upside reversal. The chart below was posted to help members navigate the close. Notice how the market initially tried to hold at the top of the target box, but eventually penetrated through the bottom. The correct way to trade this area depended, of course, on time frame. Scalpers should have shorted the break of 1320 and could have made up to 7 points in a matter of a few minutes. Others may have attempted small longs and gotten stopped out; swing traders may be roughly even on their trades and looking ahead to next week, if they traded it at all.
In any case, it's important to understand that losing 1320 did not change my view of the big picture, it was only a guidepost for a short term trade. That's why it's not a fat red line on the chart like 1333. Members in the TTC forum are already aware of another crucial target number below here that would change our attitudes. Whichever direction the market chooses to take, we have numbers and patterns for next week and will adapt them as shown above to suit whatever the market provides in realtime. Even though the week closed on an inexorable drip lower in stocks, the overwhelming evidence continues to show this market is anything but random and, going through the end of the quarter we're likely to see volume pick up again and clarify the current ambiguous situation.
TTC will close soon to new membership.
Speaking of quarter end, we originally thought we would close the doors to new retail in June or July, but I've decided to move that up closer to May 31, Memorial Day weekend. The opportunity to join the TTC community of traders is slipping away from retail investors. If you're really serious about trading learn more about what TTC has to offer and how to join now.
So, do you want to learn how to trade short term time frames? Would you like access to next week's charts posted in the weekly forum right now? Ten to twenty big picture charts are posted every weekend. If you feel the resources at TTC could help make you a better trader, don't forget that TTC will be closing its doors to new retail members on May 31,2008 . Institutional traders have become a major part of our membership and we're looking forward to making them our focus.
TTC is not like other forums, and if you're a retail trader/investor looking to improve your trading, you've never seen anything like our proprietary targets, indicators, real-time chat, and open educational discussions. But the only way to get in is to join before the lockout starts - once the doors close to retail members, we'll use a waiting list to accept new members from time to time, perhaps as often as quarterly, but only as often as we're able to accommodate them. Don't get locked out later, join now.
Have a profitable and safe week trading, and remember:
"Unbiased Elliott Wave works!"