In the Jan. 7 update, I wrote:
“But, of course, you still want to know whether we topped this week. Let me simply continue to say that there is no confirmation of a top yet at this time. Are we close to one? Probably closer than many believe but there might be one more candle to blow out
Last week’s line in the sand was SPX 1404 and this week’s low was, 1405.75. I am going to adjust that number for next week as we have a pattern in play, which, I think, is completing, not beginning. I may not be able to pin it down to the exact tick, but we will aim to keep the SPX above 1398/1402 to justify additional gains.
If it loses this area, and remains under, we will focus on the 1377/1400 range.
I’m hoping to see a bit more selling next week, but wouldn’t be surprised if the market starts advancing from Sunday nights Globex, hinting that a short term low is already in. Any advance must take out the 1416 area in the SPX or sellers will come in.”
What a week! Tough call, but I think Tradingthecharts.com (TTC) played the market better than the Gators played the Bucks! We were looking for a bit more selling into SPX 1398/1402 and we got it. The low made on Monday was 1403.97. Within points of that level, I posted the chart below, an update of the SPX suggesting that the setup we were waiting for was upon us. While we focused on making money, traders around the world where glued to CNBC to see if NYC was about to blow up from the gas smell. I am sure many biased traders were short and waiting for that news to melt the markets down. The market moved up, of course, and we were once again able to capture terrific gains by finding the low of the move, all the while chanting our new slogan “Unbiased Elliott Wave works!”
From that first hour’s low, the market spent the rest of the day grinding upwards to an advance of ten solid points. Tuesday morning’s opening rally stopped at 1415.61, less than a half of a point from the 1416 area I mentioned we needed to be beat or else sellers would take over. Knowing that well in advance, and seeing it in a Market Profile chart, we used 1421 in the futures to go short at Tuesday’s closing bell.
The SPX gapped down on Wednesday morning, providing us with a profitable stop on our short. Shorts tried hard but where only able to produce a higher low. That made things worse for them as now we had a simple ABC correction in place to explode from. The NDX chart below was posted right after the SPX made the higher low, and any “unbiased” trader would clearly see something was wrong. My members have the benefit of receiving this type of evidence, and making their own decisions.
Not only did the NDX resist attempts to take it down, it was not even able to make a small-degree second wave pullback! Talk about strength within the leadership! In addition, there was simply no excuse to be short the SPX as that was taking place. Bob Carver, from Marketclues, also supported my position on Wednesday by posting this next chart of his money flow indicator, which reveals other traders had the same thoughts and were clearly buying.
As mentioned before, the selling into Wednesday left an ABC correction to explode in a wave-three advance. The market did not waste any time realizing that and off she went. From Monday’s lows, the SPX produced 26 points, which, using only one e-mini contract, gives you a profit of $1300. TTC’s monthly fee is $50. When you can realize over two years of fees on a single setup, the evidence is simply overwhelming.
So, what’s next? NOW we are finally getting to where I can become comfortable looking for the market to complete my count. I may have started to sound like a broken record, saying, “I still didn’t see confirmation of a top and that I needed another new high.” But it’s the market that has been playing this same old sideways tune.
If you are actually out there getting bored, then the bad news is the SPX can still advance to higher levels without necessarily confirming a top. Sentiment indicators have tried to provide sell signals intraday, but we have not closed into those levels. Indicators are diverged, but this recent rally has kept them from triggering sell signals. With that said, the good news is that if I do get the signals any time soon, I can finally be comfortable labeling a chart complete, knowing it is correct.
But that is far from an “OK” to short everything, because there are still several possibilities from here. We are already going to start with built up anxiety, since the markets are for Martin Luther King Day. Then we open trading on Tuesday with the market inches away from a new high/top and Intel reporting at the close. Then on Wednesday, Apple reports. Starting to get the picture? How about options expiry on Friday? Wait, there is more. At the end of the month, we have Google and the Fed meeting.
What I can say is that first, if we are in our final fifth-wave move up, then I need to see it end at this final push into next week, or else this is only part of an up/down sequences. Targets are at any new high, up to 1446/1472. Another view, which many might overlook, is that we are not done with last week’s correction. An impulsive reversal will be needed to start thinking about short positions. I will be watching any turn from above to take out the zero line of my indicator on my 60-minute chart. Doing that would get me short or any blow off that reverses from the targets. If we immediately turn from Friday’s close, the larger correction would be valid down to 1409 or 1397.
With the above chart showing how perfectly we were driven into resistance, next week should prove to be very profitable to unbiased investors who determine which of the three setups are taking charge. Let’s look at the trendline on the chart above as fourth down with one yard to go. Do we punt, try a field goal or go for the touchdown? Careful on any gap as it can create either an outside reversal or an Island!
My weekly proprietary trend chart below, which has clearly guided me upwards, is still agreeing with this advance but the daily is saying a much different thing. That type of action is normal and just the way charts were meant to act. One of these charts will turn soon, giving me the go ahead with the next move, to either a top or a blow off!
Looking forward is always risky and I am a bit uncomfortable putting specifics into this week’s update since it looks like volatility will continue and even increase very soon. But weekly readers should also recognize that I constantly monitor and update setups in the forums everyday and anything said here, like everything else in the markets, is subject to change without notice. The key to our success is staying unbiased to any specific outcome and simply to make disciplined trades based on what the markets dictate. It’s called “trading our charts.” And unbiased means setups evolve in real time, but you can catch all the exciting intra-day developments if join us on the forums and in the chatroom for just one ES point a month ($50)! Join now
I have been talking about Google reaching its triangle target perfectly, and wondering if it would it reach a Fibonacci target. There is a case to be made that is now trying to reach that target. If the NDX continues to outperform the rest of the markets next week, it strengthens that case. The drop from the highs seems to be unfolding in thee-wave patterns, which also support this case. If that is not the case, then Google will simply roll over soon and give you an excellent shorting opportunity.
Talk about following directions! The chart below has to have made money for lots of members and readers. Being stubborn about that red trendline being a magnet proved to be correct this week. If no other advance from here occurs, it was worth 50 points! So if you went long the three-wave pattern into the top of the gap, you make $5000 on each 100-share lot, and much more if it does reach the $541 area.
Long positions should now adjust their stops to the idea of resistance close above. More importantly is the hidden wealth in this chart as we approach Google’s earnings. Turn off the financial news and pay attention to the chart. You have my target, a gap just below, the larger gap we were able to leave open, and the last high’s resistance. If higher, I truly expect a reversal off the target or at least price vibrating around it as it decides as the bulls and bears battle for the direction of the next move. If it finds support there, rather than resistance, hold on for the ride! I do not see that now, but keeping an open mind for the possibility, well, that is where the “unbiased” trading comes in.
This chart tells me that Google doesn’t have any room to mess up. Between that, and all that is scheduled this month, it’s show time.
Dominick Mazza
Trading the Charts.com
Dominick@tradingthecharts.com
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