I am sure by now many traders have noticed what has really been going on. It sure does feel as though the capitulation phase I have been waiting to see may be upon us, as this was a brutal week for anyone stuck in a short position from the February top. Or from any of the inviting diversions along the rally from the March lows. That is just the market doing what it is done ever since its doors opened – it will get every bear to cover and stop shorting, while getting the late bulls long, as the train appears to be leaving.
So, it sounds like the next step will be easy enough right? Think again, because if it were, everyone would be on the same side and there would not be a market. It's times like these that people like to say, “a market can stay overbought longer than you can remain solvent.” Shorting blindly into a blow-off market because it cannot go up any further is a sure disaster for the trader. Having targets, patterns, unique indicators, and an “unbiased” approach is what is needed, and we have it. We have the tools and the momentum, and some of the smartest seasoned traders.
In last week’s update, I wrote:
“We are once again close to a very important juncture, so close that it could be only a few hours away. The map that led us here continues to work perfectly, so we will continue to follow it. If correct, we do not have much to do but make money.
Does the next move become the capitulation stage or once again the talk of a 3rd of a 3rd of a 3rd? We believe we know that answer. Bearish sentiment continues to fuel this rally as short traders are forced to cover on each upside surprise. I will be monitoring option sentiment at our nearby target next week.”
Well, we were close all right! We did not waste a minute gapping up 6 points on Monday and then continuing the grind higher, forcing shorts to cover yet again. Luckily, we were not trapped into Monday’s gap up as we had bought the 1452.50 low last Friday, though I am sure some members took profit and some held. More importantly, we expressed that we did not have a sell signal last Friday, so at the very least avoiding having Monday morning’s gap up going against you is a great way to start the week.
Readers should remember the statement made from one of our noted market observers at the March lows. He had stated:
“When there have been two readings over 2.5 in the same decline, the market never closes lower than the day of the second reading and has always rallied more than it dropped.”
That promise was achieved this week as the S&P futures passed the February highs. That high also put a halt to traders who continued to push up their wave two bearish counts, since wave two cannot make a new high. It is a shame that it took a 100 S&P points for many to see the correct trend and count.
Any member that took the long position for a swing trade and held it would have been up $ $29,500 per S&P contract! In fact, our target on this move has been 1494 on the S&P futures, 1 point from Friday close!
Our members who day trade are probably doing even better than that, since we were able to read this entire advance correctly. After issuing cautious comments on Wednesday’s close for the first time, we instantly woke up to a huge gap down in the market. Most would have been content just to take credit for such a good call. I instead elected to buy the gap. Yes, buy it. A gap of that size changed the structure of the market from short term bearish, to very bullish short term. Reading the market structure correctly and being “unbiased” will award you like that. The chart below was posted at 8:23 am on Thursday along with this statement.
“Finding support in the shown area is a gift. We do not have a "must hold #" but that area +/- has to hold to make this a great setup. Holding there will setup a rally into options expiry.”
That is exactly what it did. It closed at its high tick on Friday producing a gain of 20 + points in 13 hours.
Another chart was posted on the NDX. Once again, the chart proved that knowing the developing pattern and holding no fixed bias would capture these everyday moves. Everyday. Below is that chart of the NDX showing the opening target and of course, where it would be wrong. The NDX found support exactly where expected and rallied almost 40 points to precisely our target for Friday’s high.
The question now is whether we are making a run to the 2000 highs or this the prelude to a large decline? We continue to follow our original charts that have had 1494 as a target for the S&P futures. We know the small up/down moves the market should, or should not, do here and once again believe we could be hours away from another big juncture in the markets. We have a chart that points to Tuesday as a day to watch. If not, I will meet you at our next turn on or about May 9, along with the Fed meeting and anniversary of the May 2006 high.
Below is a daily chart of the SPX showing trendline and technical resistance coming up. We will be sure to monitor this along with all our other daily tools.
If you have not made good profits this year, its time really to think about what you are doing wrong. Or should I say if you have watched or shorted a rally from the 2002 lows that has recovered all but 70 points of the its decline. If this is you, join now, become part of TTC and get to understand why you are trading a certain side of the market and learn how to find the money. It is also a perfect time, as we will be having a fee increase before the summer. Read below for details.
We will also be watching our European markets next week as they continue to push ahead to my “trade of the year” idea. Looking at the chart below shows you why we have such an interest in the Dax. Below is a weekly chart of the NYSE with the Dax overlapped on top. Are they tracking each other or what?
The Dow maps that we have made since the March lows have rewarded our members nicely. The market has not even thought about putting them at risk since that low. But the smell of capitulation is in the air. After all, look at the chart below and tell me how a trader who has been on the wrong side of this market would not finally throw in the towel?
Europe
The Dax has been pulling us along their explosive ride the last few weeks. This is surely another index on our radar screen. We think we have the area it is targeting as shown in the chart below. If this is something you want to pay attention to, our members now have the trend charts on the Dax to use for their intraday trading. And trust me, these charts have saved many traders that were always quick on the sell button. The Dax forum has been growing nicely, we would love to have traders around the world join in and trade together in our great technical community. You can also take advantage of our chatroom, open 24/7.
After another terrific week, we continue to fire on all cylinders and next week will not be any different. Most of you have my ideas for next week. If not, be sure to check all the updated charts this weekend as the next few weeks should be very volatile. Below are the Dow maps we have been tracking. I replicated those charts for the S&P. Use the link below to see those charts.
Dominick Mazza
Dominick@tradingthecharts.com
“Unbiased Elliott Wave works!”
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