Stocks & Commodity Markets Technical Analysis - Party like it's 1999
Stock-Markets / Financial Markets Apr 28, 2007 - 09:33 PM GMTBy: Dominick
The markets have totally blindsided any trader or analyst who's clung to a bearish big picture view of the markets since the 2000 high in the S&P 500. But now, 60 points under its 2000 peak, some of them are finally looking to buy! It was only a few months ago that acquaintances within the trading community had every sort of target or cycle that supposedly should have halted this advance about a hundred points lower. Now, they ask if it can extend. Once again, this is Mrs. Market doing her job well oh so well.
Sure, if you are looking at a monthly chart in a few years this move up can be part of an extended correction but missing 750 points as w2 labels get repositioned higher and higher is totally ridiculous. Anyone that examines other markets like the Small Cap index below would have realized that markets were screaming to new all time highs much before they finally see it on the S&P.
You might remember what I said last week about the prevailing market conditions:
"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 wouldn't be a market. Its times like these that people like to say, "a market can stay overbought longer than you can remain solvent." Shorting blindly into a blowoff market because it can't go up any further is a sure disaster for the trader."
A disaster indeed for anyone who perpetually believes the market is too high and has to pullback when in fact, the market doesn't have to do anything but continue to have you on the wrong side. Look at any chart and it clearly shows the shorts have had some serious pain lately as they cannot get more then a day or two of a pullback. Bear market since 2000? What bear market?
A perfect example occurred as we opened the week, selling off hard Tuesday morning only to advance 25 points from that very short-lived pullback. Of course, we had a turn due for Tuesday, and even though one's bias would have had them initially thinking it was a high, it became the low of the week so we traded it as such.
When we opened up on Wednesday the shorts again tried to halt the advance, but couldn't. The day grinded upwards indomitably, closing at the highs, which left a lot of traders nervous about Friday morning's GDP report since they were at a loss if they didn't cover their positions. Having a good feel for how markets position themselves ahead of important reports, I posted the chart below within our U.S Forum along with the idea that the current late-day rally on Thursday wasn't going to run away and could possibly selloff either into the close or in the morning.
In Elliott wave terms, the chart shows that I had already seen a peak and was looking for a drop to just below where start of the (a) wave low. As we now know, GDP was soft and down came the futures to just below the (a) wave as shown in the chart below.
We also had a projection that called for a Friday morning low of at least 1494.50 in the S&P futures, which turned out to be the exact number. But, I'm sure many of my members are beginning to get trigger shy on taking any longs from here, and I can't blame them. That's fine because we have a market that they can trade short as long as they cover at the pattern completions. Friday was a perfect example where if anyone didn't want to risk trading the long side, at least they didn't overstay Thursday's short either. It's those trap door setups that are killing the bears because that's where most traders initiate a short, but it's my members covering theirs that are on the other side of that trade, and as it's been happening very frequently I'm sure members are delighted with the results.
As readers know, I've been very bullish on the markets since the June lows and called for the 1360 level on Aug 14th. On reaching that level, I continued to remain bullish as the market retested that level from slightly above, proving it had business to complete higher up. As we reached those higher highs, I started to entering a mindset I am going to get into now. As before, I believe we are at another important juncture. Like then, I think we might have some more work to the upside, but will be looking for and planning ideas to trade on any reversal.
Being bullish ahead of just about anyone else from the exact March lows, since we got exactly the retest of 1360 we'd been waiting for. Just as it was at the lows, it won't be easy for many to understand my stance while Wall Street is out there partying like it's 1999. This week also exhibited a bit of complacency with the run-ups in Apple and Amazon. We all know how the party ended last time.
So, now we want to step back on the long side a bit and look for a confirmation of a turn. I must say that sentiment readings aren't anywhere I'd like to see, but then again I'm also not short yet. We'll continue to trade both sides on the intraday while watching for a turn in the larger picture. We have two main themes to work with, one of them looking for a bit more upside over several weeks if it finds support on any small drop in the short term. Members already know the key pivots that need to be taken out.
I originally showed the chart below in this weekly update back on March 11th. No one wanted to hear such craziness as we were thought to be on our way down in a 3rd of a 3rd of a 3rd. The 1946 analog had shown good reason to believe we were putting in a low, rather than seeing a high.
Immediately after the March lows started to find support and rally, this chart became interesting to us and many other analysts around town. So far it's right on track, but if the trade becomes too crowded we'll ditch it just like our 2004 analog, which we did on the exact day it stopped serving us.
Last week I also stated:
"We have a chart that points to Tuesday as a day to watch, if not, I'll meet you at our next turn on or about May 9th, along with the Fed meeting and anniversary of the May 2006 high."
We did get a turn on Tuesday and now await the May 9th turn along with the Fed meeting. We might need to pull back a bit and consolidate prior to the Fed. My gut tells me this meeting might be one we remember.
In the meantime, the short term needs to be played out day by day while continuing to monitor sentiment, wave structure, targets, and our trend charts, which have really been helping out our members recently. Below is a 15 min chart of my trend system showing the rise from our Tuesday turn and more importantly, how easy it was to see that Wednesday morning's gap fill wasn't going to go any lower.
Just look at the indicator as it pegs to the top as price is dropping hard. Simply a no brainer of a trade. These charts are being used on the intraday for the SPX, DAX, gold, and oil. Daily and weekly time frames are available on a few other markets and I plan on getting them for most other markets in the near future. Stop by and spend a month with us and see if we can improve your trading. After all, its only 1 ES point! ($50 a month)
If you haven't made good profits this year, its time to really think about what you're doing wrong. Or should I say if you've watched from the sidelines as the markets screamed higher or if shorted a rally from the 2002 lows only to watch the S&P recover all but 60 points of the initial decline - it's time to try something new! 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's also a perfect time as we will be having a fee increase before the summer. Read below for details.
Europe
The Dax is certainly an index on our radar screen as it's been pulling us along on its explosive ride the last few weeks. We think we have the area it's 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.
Softs
OJ continued to suffer as our short position gained. We were expecting a bounce which seems to have started.
Be sure to find out our next commodity find. We await a reversal any day that will become a nice swing trade.
And for a trade in the opposite direction we quietly wait to see if we get confirmation of a decent top in the monthly chart below.
While stocks are breaking records, gold's been missing out on the ride. Read Joe's Precious Points update to find out why and get the first word on next week's outlook.
Members only
After another terrific week, we continue to fire on all cylinders and next week won't be any different. Most of you have should have seen my weekend posting by now for next week. If not, be sure to check all the updated charts this weekend as the next few weeks should be very volatile. I've already posted about 50 big picture charts in the forums on Saturday.
Also make sure you are aware of TTC's new addition to help many keep an eye on the Forum updates without needing to constantly login to check. We made this neat feature that you open to your desktop and you will be able to see when someone posts, and who is posting. There are some handy links there as well as a small time frame trend chart. I'm sure I'll find other things to add to it.
To Current and Prospective Members:
TTC will be increasing it monthly subscription fee sometime before this summer. The increase has become inevitable due to our ongoing expansion of the Website, computer and software upgrades, and the addition of services such as trend cycle charts. Current members and anyone that joins before the increase takes effect will not be subject to the new price, and will continue paying the current $50 subscription fee on a month-to-month basis. So if you have been thinking of joining, this might be a great time.
Thank you for your attention to these changes. If there are any questions, please direct your email to admin@tradingthecharts.com
“Unbiased Elliott Wave works!”
By Dominick
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