ChartsEdge (U.S. equities) map for 8/4; and some comments on trading these markets

ChartsEdge Market Map for Aug04

Posted: August 4th, 2009
Author: Mike Korell
Filed under: One-Day Market Map Comments to ChartsEdge »

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Thanks once again, Mike and ChartsEdge!

Folks ... whew! After we saw the markets going into key levels; after we saw a big shift happening on Friday with the dollar dropping and oil, gold and the euro pushing up again; after bullish sentiment rose significantly again, as I showed via the article on sentiment I gave the cite and link for at my UBTNB3 blogspot, and Andre Gratian showed in his weekend update; we had a huge day yesterday and of course I posted and showed charts for how it looked especially in the dollar. As I have explained, now that the 77.92 level acted as a magnet to really get the dollar index there, it's one of two things: this must be a pivot now, and either the dollar index gets support and moves up, or it ultimately fails and we go lower with my next important Fibonacci level at 73.58 for the dollar index.

Those are levels that I've been showing for weeks, maybe months now. Same for these important Fib levels in the SPX, and over the past few weeks I've been showing that 39.82 level for the QQQQ's.

This means we cannot be surprised to see weakness and maybe some will call it a turnaround Tuesday. There are different types of traders - daytraders, short swing players, longer-term swing traders, and intermediate and long-term position traders. If you're a fast player, you may already have been spec-ing out a position based on these Fib levels. If you're a more traditional swing trader, you're thinking in terms of classic chart signals - trigger day (e.g. for short, closing under prior day's low), confirming indicators and followthrough pattern. So while being down from the levels we've seen, it will still take some time to see whether or not we get a significant level of trendline breaks, indicators reversing, and followthrough.

[Reminds me of UNG - if you stayed with respecting the numbers, that it would remain with bullish prospects so long as above $12 and $12.20, you were very happy yesterday and we just have to let it show followthrough to show that it can continue to move in a positive direction longer-term. Those support levels will continue of course, but once we see continued followthrough then it should form additional, higher swing lows that can be used for trading, stop, and position purposes. So for KI$$ purposes, it's a matter of holding in and giving it the opportunity to run some more ... same comment for VXX, based on the comparable VIX levels.]

Assuming that downside followthrough happens in the SPX, QQQQ's and equities indices generally - what does it mean? We have one school of thought that the rally can be over, period end of story. We have another that it's only into a pullback and then the rally resumes. There are Elliott Wave patterns to go along with each. For the more bearish, this was either a large wave 2 maybe complete, or a wave 4 complete. For the pullback scenario, we've got Tony Caldaro's major A to be followed by major B down and then C up to complete the entire primary B. Or another EW idea of the A wave of a 2nd wave, to be followed by B down and then C up to complete the 2. These latter two ideas probably aren't too different except for the depth of pullback and then later for the extent of later rise - and later on, are definitely different for what happens next (like next year).

Cycle view - remember there's an idea that the bear market rally could go 20 weeks, or could extend longer, beyond 5 months to as long as 16 or 17 months. I think these cycles ideas can be interpreted as either in the more bearish EW camp, or the second EW "pullback and then more rise" camp, on either count.

The whipsaw of the past few trading sessions probably got a lot of traders rattled and at best looking for answers, or at worst folding up and afraid to trade. My recommendation is, try to be in the first category. My touchstones are always the Fibonacci numbers, they seems to shine out as guidepost numbers even when the Elliott Wave or other information gets murky. It is true, sometimes the market seems to just get close to a number and then react and make even me wonder if "that was it," or will it actually get right to and maybe overshoot the number. We saw it happen with the VIX, which almost got to 24.78 and then popped high, but it swooned again down and overshot 24.78, then got back above it. (Yes, I also realize that the real .786 number may have been under $24 and it depends partly on whether calculated with intraday or closing numbers. Either way, it finally got there in a manner like a whipsaw.)

Now we've seen it happen again with the dollar, and maybe even with gold, maybe even with the euro. Point being, as whipsaw as it's been, there is no reason not to use these key Fibonacci numbers that are shining right off the charts at us. Some of the most clear ones now are the VIX, remaining above the $24/24.78 area, and now the QQQQ's and what they'll do from $39.82. Others such as in the SPX raise a few more questions, as there is a cluster from 990 to 1014 (above that, there's 1053 but first things first). So now we have a triad of numbers to trade away from with the dollar 77.92, the VIX 24/24.78, and the QQQQ's 39.82.

That isn't so bad, is it?! So use these numbers, and we'll continue to watch which levels the SPX wants between 990 and 1014, as well as its trendlines and indicators (and wave count on the hourly when it looks verifiably complete). The SPX has conveniently still been using our "string" such as 982, 987, 992, 997, 1002 - so that string can still be worked as long as it seems to be working. As always, be careful out there, let the trades come to you (i.e. don't push them, let them come to you), and happy market navigating!