Market Map for Jul17Posted: July 17th, 2009
Author: Mike Korell
Filed under: One-Day Market Map
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Thanks once again, Mike and ChartsEdge!
Folks, some observations. First, what a difference this week has made! Or ... has it? Never a good idea to get complacent on the market, in either direction. I'm beginning to see many people who now say they didn't feel the head & shoulders pattern would work; funny I didn't see those remarks a week ago. Okay, okay, I had wondered myself whether "everybody seeing it" would doom it - because sure, that's a phenomenon that traders need to understand. Namely, that when too many people see a pattern, it actually becomes a less probable pattern.
On the other hand, the reason why I did not mention it was three-fold. First, if we were going down into a "C" wave, even Robert Prechter has stated that in a "C" wave down, that's a "recognition" movement where the news is bad, the market is bad, and everyone is getting the understanding. This is one aspect of a "C" wave being like a third wave, in Elliott Wave terms. So the simple fact that "everyone was seeing it" didn't preclude a "C" wave down from happening.
Second, the McClellan Oscillator had not broken up out of the triangle or wedge, so the internals weren't there. It did get support at the lower line I had been marking, so we knew that, but that alone didn't tell us that it would break over the upper line. This, along with the VIX, the declining Summation Index, all painted a picture that - despite the pickup in the transport's buying volumes off the low - didn't look like any proof that the market wasn't going to continue falling under 880. The VIX shares with the dollar that both have been digging lower. Unlike the VIX, the dollar hasn't made a new low for this decline ... if that changes and the dollar moves under its early June low, that looks like another game-changing event. (There's one possibility for an EW pattern that could allow the dollar to make a new low here and "be done" but it's very risky to assume that, which also depends on whether it makes a lower low as I've marked on the monthly $USD chart. Point being, if it makes a lower low on the monthly chart then it certainly can project the dollar lower, which "should" be bullish for equities at least the way things are moving in the markets this year.)
Third - there's that Bradley model. My sense is that ChartsEdge and other cycles analysts I track do not necessarily incorporate the Bradley model, as it isn't the type of cycle that they normally factor in. Although Andre Gratian has noted it, so even that's good enough for me to know; and with the huge rise as the Bradley model chart had indicated for the July 14-15 time window, who's to say that's a cyclic factor that gives out now, as a turning point window? I still take the Bradley forecast with a grain of salt, but the July 14-15 was shown on it as a very important turn window (compared to other dates on it); and so I don't totally reject it either. Anyone wanting more information on the Bradley model, just click on the "Cycles on Bradley model" label for prior posts with a lot of info on it.
Going above 912/913 was a game-changer that nimble traders were able to take advantage of. Swing traders and position traders don't have that kind of flexibility, although this kind of event is just one of the many reasons for always maintaining a good amount of cash in the account (keeping some powder dry, as they say). Notice also, that the market already WAS at the "max pain" levels such as SPY 91 and QQQQ 34/35 a few days ago - so if you're a Machiavellian opex-based trader, you'd have been thinking how could the market possible flat-line into opex and either it would have to drop first and then back up to those levels, or do the opposite to surprise the most people with a rise then followed by dropping back into opex Friday. But can the market possibly go all the way back to those levels today? Well, that also depends on the intricacies of how options are pricing, because of the way that in turns influences the aggregation of traders working with that, so all I can see on that is, we'll see.
The past two weeks we've seen an interesting progression of market numbers around 892, 902, 912, 922, 932, and now 942. Not saying they take precedence over other numbers, but don't forget these numbers either! If the market does indeed go into a down wave today, some numbers to focus on are the 932 area where the market range-traded yesterday morning and mid-day (looked like a triangle to me), and then if lower, there's a gap wa-a-ay down there at 905 (hard to think it gets there today, but it's there and may want to get filled at some time).
From the bigger perspective, this leaves us once again going into a weekend with fodder for discussion on which way the swing-trade type picture is shaping up - a very common thing on Fridays, I must say. The S&P 500 hasn't "broken" Tony Caldaro's primary count, even though his alternative count (marked on his DJIA charts for weeks) may move to the fore. I also must reiterate what I pointed out a couple of evenings ago - sentiment is very hot now, with that SentimenTrader gauge almost to the extreme of bullishness in the short-term indicator and the VIX, as we know, testing that 24.78 level. Will the VIX start with a small inverse H&S of its own, as the UNG chart did recently, and then pop up? From a straight chart perspective, I'm thinking that's likely. Doesn't absolutely dictate the equities markets pricing as we know, but usually a pretty good clue and that's even those who don't trade the VIX, watch the VIX.
Dr. Brett Steenbarger posted an article at his TraderFeed blogspot this week about trading time frames, it's an excellent point. He went part of the way to articulating my reasons for always reminding you to trade your time frame and style. It's a common mistake for swing traders especially, to set a position based on a pattern setup, and then start second-guessing it way to soon and fiddling with it, and bail out too fast. Of course, another mistake is to set a position, and then if the pattern doesn't work out, to "marry it" and keep digging into a loss, so don't make that one either. So, does the market's rise this week take you out of your position in any way? That depends on your time frame and style as I always say! Daytraders could have a field day with it - and even though ChartsEdge's daily maps didn't "work" for price level bias, you could still use them for the intraday timing which is their primary purpose.
Swing traders normally are nimble enough to stop out at least, with a game-changing event like going above 912/913 - so that's obviously why I described it as a game-changer the day before it happened (at least in a tweet, and I think I mentioned in a post here also, whether the day or the morning before it did). For any who may not have been nimble enough, or felt nimble enough, to stop out of a short or to hedge with calls or long positions (at least hedging should have been possible!), there remains the task of observing today's action and reading the tea leaves this weekend.
And we'll all be reading the tea leaves this weekend! So meantime, as always, be true to your trading time frames and styles, careful and "good luck" out there, and happy market navigating!
PS update 8:30 am - a reader has provided a link to this article, http://seekingalpha.com/article/138298-today-s-market-vs-1938 suggesting it's worth considering. I may not be able to review that until this weekend. Certainly I'm aware of and as I can, tracking those who are comparing the markets to some area of the Great Depression market. *Candidly, the market wave that keeps coming back to me for about 2 weeks now, is much more recent, the move up in September/October last year, where the wave kept bending over and then after some gyrations, the drop. Doesn't mean it's going to happen now! just has been reminding me of that time.) I haven't signed up to any particular viewpoint on which part, if any, of the Great Depression market movement we might be mirroring. Main reason being, I believe from a big-picture Elliott Wave standpoing, that we are probably dealing with a different large-wave pattern and therefore I'd rather see this one more on its own - just my own approach. To the extent I look for a prior parallel, I prefer to look back to approximately 1837 through 1852 time frame, but unfortunately I haven't located any good charts of that time to make similar comparisons!
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