In the Jan. 14 update, I wrote:
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 is the market’s that has been playing this same old sideways tune.
Sentiment indicators have tried to provide sell signals intraday but we haven’t 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.
Well, nothing has changed. I still do not have a sell signal and I do not gauge sentiment at the end of an options expiry week. We opened the week on the S&P trying to poke our heads to higher levels only to find sellers out playing whack-a-mole. We tried on Tuesday and then again on Wednesday only to sell off into Thursday. Basically, the market is still playing the same sideways tune.
I am sure many traders were either buying into the new highs or sold the reversal of it thinking it was the big one again. We instead, had our roadmap to use, and it went well. The chart below was posted at 11:00 on Tuesday morning and the rest of the week, we waited for the S&P to find its way into and out of the target area. We were not chasing any moves but instead, buying and selling support and resistance. In fourth waves, you either trade it back and forth or find a different market that is moving. We did both.
In all, it was a boring week for index trading, seeing more of a healthy pullback than anything else, but it was nice to see members use the Forums to their advantage in other markets. We spent most of the time taking advantage of the drama on the financial news stations in regards to oil. The talking heads have officially gone from bracing us for $100 oil to an almost palpable sense of disappointment as they start to anticipate the price will drop under $30? What happened to peak oil? I think the point to take is that watching the news is no way to make money. Folks, wake up and use your charts or go broke!
I have been looking for a bottom in oil over the last week or two and expressed last week that I was looking to buy it above 54.61. With all the non-stop talk of oil, I posted on Wednesday at 11:00 that I was going to take a small long position. The next day, after rallying off the lows, oil made a slight new low, and has since started to advance upward. It was actually nice to start getting questions like, “What is the symbol for oil futures,” or, “What is the symbol for the ETF?” There are many markets to trade and people are realizing that many of them are actually easier because they move more transparently. Many traders at the Forum took home 2 points of profit from oil and, after they turned off CNBC, laughed their way into the weekend.
If I could have my way, oil would play around at this level a bit and then spike down and reverse leaving no one on board for the next train going to $60 plus. But oil is going to do the deciding and, if it blasts off from here, I have no problem paying up after confirmation that the low is in. We are still under the 54.61 and it is questionable if a low has been established or if another low is needed. The March contract has resistance right above it and I have been taking my profits into the weekend. Once I can see confirmation, I will either wait for the low or chase the price higher. But, as you can see from this daily oil chart, there was a reason for traders to start buying recently.
If we do get lucky and see a spike to a higher low, a double bottom or a take out of the lows, I expect it to be fast and to reverse. There could be a nice bear trap at 50.50. Being so close to $50 makes you think that it will be penetrated, if only to open the trap door. If that were to happen, I will be watching 49.70 closely, but the March contract does have targets down to 47.60.
So, as you can see, even though last week was boring, we kept busy. Going forward, we may have plenty of chances to do it again, but we will definitely be keeping our eye on the major indexes. Friday’s advance on the S&P will probably have early next week taking off to new highs, where we have the potential of creating a reversal pattern. Otherwise, the S&P’s are looking to buy time into either the end of the month or possibly around Feb. 8. If so, we might trade sideways to down until we approach those dates.
The only surprise here would be an impulse move lower, and that would not come as a shock to anyone following the Nasdaq, which might be already heading south. I rather have a pop to short as I patiently watch to see if my NYSE target mentioned months ago reaches perfection. The chart below shows the NYSE weekly at the 9314 target. Sure, at this proximity it would already be considered a hit, but why get in the way of Mother Nature?
And could the DAX be running into nice resistance and getting ready to lead us to what we have been waiting for in the S&P? The chart below seems to think so. Generally, the DAX has been behaving excellently and is another example of a market that is much cleaner than the S&P.
Another area to watch going forward is the volatility index. For years, I have joked that the markets would not top until the VIX closed under 10. Not only has it done so, but it now seems to like this level and may want to consolidate or poke even lower in the short term. The chart below, however, shows what the direction of the larger move should ultimately be.
Dominick Mazza
Dominick@tradingthecharts.com
Trading the Charts
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