Finally, a double top! Or wait, was it just a pullback in an uptrend?
The volatility we promised back in January has been a constant theme this year, and the market continues to punish anyone that is wrong or just has some of that good ol’ bias. “Crash,” the C-word, was once again splattered across the topic lines of many forums and financial groups. You would think after what we went through this year at the March bottom, and last year in June, people would learn to give it at least a week before labeling the move.
Most know that my thought has been that this market won’t stop moving up until it takes out every last bear. The chart below of the ISEE proved that the option player was buying puts on Thursday with both hands. It was posted in the chatroom on Thursday’s decline showing that we were spiking to levels not since the March lows. The market is made of fear and greed, and boy were they flying this week!
So, could we have bottomed in a fourth wave or be bottoming in something of larger degree? Fourth waves are characterized by "surprising disappointment" and often terminate near the previous fourth wave of lesser degree or the second wave of an extended fifth in the preceding upleg. This week's drop qualifies on all counts. We originally had been looking for a pullback into the 1485 area since the character of the preceding advance suggested a deep fourth wave decline and that's what we got. Judging by put/call action and the ISEE chart above, the drop was enough to convince most that they should now play the market from the short side.
We were starting to become frustrated about not getting the pullback for weeks only to realize that it used our exact June 1 turn date to start the decline. Not only the exact date, but also right into a perfect target. Readers will remember this chart below that we used to trade into the target area last week.
Last week I also said, “This week we found new ways to present our work to a very rapidly growing number of members, as well as making a statement about what I think we’ll see in the near future.”
Thursday night, May 31, I shared my concern about the market and, to sum up a lengthy post, I said the risk had shifted to the long side. Until then, I had believed it was to the short side, which proved to be correct. Sure enough, Friday morning the S&P’s make a high, then a double top on Monday, before they began the recent sell off. Our target of 1539.60/1545 was achieved at the exact turn date of June 1.
Below is one of the charts that were supporting a reason for a high. It’s a chart of the New York Stock Exchange showing an ending diagonal aiming for its target.
Once we recognized the sell off it started to pick up steam but it sure did look corrective in nature, which makes it questionable whether it’s the start of something or not. On Thursday evening, while fighting off the bearish counts of others, we posted charts of the Dow showing several reasons that the market was ready to turn along with charts of pitchforks on both the Dow and SPX.
As traders around the world started to get comfortable with the sell off, we decided to trade on Friday. As it turned out, the S&P screamed up nearly 20 points on Friday and these charts nailed the lows and enabled us to finish the week with more gains, this time from the long side, after catching the lows of the week. We entered a long position as the market opened, and once reaching our daily target of 1505, we took our profits and went flat into the weekend. Come Monday, we’re ready to trade whatever the market gives us, but after playing the market perfectly for about 18 months, including the corrections, the area we’re now approaching seems the most volatile and dangerous, and waiting for confirmation of turns before getting overly aggressive seems prudent.
In the meantime, our members have several choices of what to use to help them become better traders. The proprietary trend charts have been a powerful tool, and one I’ve kept an eye on recently as they signaled to sell the top of the market last week just as they did in the Dax. The two charts below gave us approval for our bullish idea Friday morning to go in and BUY! Once seeing the setup in these trend charts, we knew it was ok to go long a scared market. We now have end of day trend chart now on more than 20 markets. That alone is worth the price of admission. $50, 1 ES point!
Members
Finally, be sure to check out our weekly Road Maps, as that’s where the real big picture shapes up, where we compile charts of any market that talks to us, ranging from a look at the last few weeks to huge timeframes all the way back to the 1900’s. This update is a nice read, but it can’t compare to these road maps.
Click here to take the express lane TTC’s “Weekly Road Maps!
Non-members
If you would like to take a peek at not only those charts, but stay the whole week with a full refund if we don’t suit your needs, join and cancel within a week for a full refund! Join now and after staying a week within all the forums and live chat room it’s simply not what you need, email me and ask for a full refund. You won’t find an offer like that anywhere else.
Europe
Readers should remember this target we had a few weeks ago in a screaming market, the Dax. The chart below shows one of the reasons why we thought we were reaching price resistance. A simple Andrews’s fork that has been in place for 10 years pointed us to a target at its midline.
A biased or emotional trader can in no way look for setups like that, as the sentiment around Wall Street was so powerfully bullish. An unbiased trader who sat patiently and waited for an entry made a ton of money. As the Dax was hitting the fork our proprietary trend charts did their job. They issued a sell signal at the top! As you can see in the 60 min chart below, the top and bottom of this market were both caught by the trend chart with no wiggles between to worry about.
Below is an hourly chart of the Dax showing that the move from high to low was worth $17,000 per futures contract. Does anyone catch the exact top to bottom? Of course not. At the same time, does everyone trade only one contract…?
Have a profitable and safe week trading, and remember: Unbiased Elliott Wave works!
Dominick MazzaDominick@tradingthecharts.com
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