I don’t believe in making grand predictions or forecasts because I have a lot of respect for these markets, which can so easily transform those pronouncements into humble pie. I prefer to look at the action as a series of probability tests based on tendencies observed over a long period. Last week's action hinged on the Spring Equinox pivot as many times the change of season has helped to push price action one way or the other on many occasions. In the near term, I was leaning in the bullish favor, since we found a low at an important cycle point just the week before. I felt the Spring Equinox would be dominated by the larger cycle, at least in the near term.
This outlook was rewarded by the action surrounding the Federal Reserve Bank interest rate announcement. If you were paying close attention to the futures market, we were without the usual chaotic seismic activity that usually dominates these days. Instead, the action on the five-minute chart slowly melted up until we traced out three large white candles right after the zero hour. The reaction was positive and from where we were on the chart, it spoke volumes that this market was done retesting the lows. The next matter of business is retesting highs. However, the fact that we took out near term resistance in the form of the bounce highs set on March 9-12 should be considered a positive indication. Had you elected not to follow instructions set in the Tuesday/Thursday emails, you have now given back the lion's share of your short profits from the big leg down.
The fact is on Friday the charts I follow began their process of testing upper retracement levels. The Dow stalled at the 61% price retracement level of the drop. The NASDAQ did as well. However, in the case of the NASDAQ, its 61% price retracement also lines up with the 1.618 price extension of the final leg down of the correction. This is an advanced Fibonacci tendency, which is also a universal calculation. We find ourselves coming into the new week reacting to price resistance in two degrees of trend. On a supply/demand basis, this level of resistance is also just shy of the bottom of the gap the market suffered back on Feb. 27 at NASDAQ 2468 and NDX 1808.
While indications are positive that we have even pulled away from the lows, this next phase is really the acid test to determine how much conviction the bulls have left in them. What concerned me about Friday's intraday action is it looked to me like we attempted to trace out a bullish flag pattern and could not break to the upside. Understand that complex corrections will resolve themselves only at the appropriate time bars and when they do not, something else is developing. To give you an example, in the NQ (NASDAQ E-mini), the recent move off the March 14 low topped in 184 15-minute bars. Once we start going sideways, I look for the correction to complete in certain windows. We could have resolved the sideways pattern in the 232-236 bar window off the low which would have meant the correction would have expired in 48 bars (Lucas 47+1 at 232) off Thursday's high. It could have expired at 239 (55 bars off the high), but it did not. Instead, all we got were small bounce attempts that quickly failed.
We closed the week at bar 246. This implies we are 62 bars off Thursday's high in the NQ. What that means is we are at another point where we can expect an intraday reaction. The futures market has an opportunity to break to the upside on its opening tick and if it does not, that is a bearish omen in the short term. If it does not that means it is likely going to drop (on Monday) into the 261 bar window off the March 14 low. At the 260-62 bar window that would mean we are 78 bars down off the high which would give us time support in two degrees of trend.
So here is my take. We have reached important upper resistance in terms of price. It has stalled the action. The bulls were not able to take advantage of favorable conditions on Friday to end the consolidation. They will have another chance to do so at Monday's open. If that does not materialize, Monday's bias is going to be to the downside. You should recognize this at the regular market's open because the futures day session will already have progressed 6 15-minute bars by that time. If we sell off to start the week, we really will not have the opportunity to bottom until the second half of the session. If we sell off the entire session on Monday, it may mean this bounce has failed. Pullbacks in larger uptrends need to be orderly.
These are not predictions, just probabilities based on time tested tendencies. Use them as a guide to recognize the pattern as it develops. Although it does look like we have put in a bottom, the probability of that will greatly increase if we survive this test of upper resistance levels. I will lecture on these time cycles in much greater detail on April 2 at the Traders' Library Hall of Fame Awards to honor Martin Pring in Washington, DC.
Jeff Greenblatt
Fibonacciman@aol.com
