With last weeks action, the market has flipped twice and now stands at the same high point that we have seen before. I posted several times last week to keep up with the unfolding events and I will continue to do so if necessary. Hence I decided lo leave some of the sectors out of my weekend comment, unless they warrant special attention.
I believe the market has further upside potential, but it is also very vulnerable to collapse. If you followed last weeks updates, you had a good chance at catching most of the down move and the up move as well. Nobody is always on the right side of the market, but we can read the chart and just follow what it tells us with good accuracy. I would also like to point out my disclaimer for those of you who are new here.
I am using strategies that help me identify high probability turning points. There are many ways to derive target zones (measured moves, fib retracements, P&F counts and others), but the market often decides on an alternative path. Usually it throws us a clue in some of the indicators I prefer to monitor, so I do not want you to get held up on a target and miss the turning point because of it. Knowing when to expect a turn is sufficient to gain an edge, but keep in mind that those turning points are only highly probable and not certain. You must take appropriate risk management and judge all the data without directional bias.
As a rare exception, the image above shows a target, that I got from:
- Target of measured move from sloppy inverse H&S pattern
- Prophet (software) gives it as measured move from triangle breakout
- It measures from Elliott Wave as W=Y
- Its where we could backtest the big Head and Shoulders top
There are reasons to be cautious to see how next week unfolds. Should we get further bullish action, we could buy the dips, but currently that is not where we are. In fact, the chart above and below shows that
- We hit massive supply that we need to push through.
- Someone either bought a lot of puts or got squeezed out of puts (I suspect both) on the up bar
- We stopped at a potential double top
- Keep retracement levels small (38.2%)
- Keep retracement volume small
- Consolidate all the gains for a few days, while staying above 1340
If we turn down before the McClellan oscillator can make a new high, we also have a bearish divergence setting up that requires us to retrace further. Additionally the McClellan Oscillator sits at an overbought level that marked previous tops. The Advance / Decline volume also showed some doubt, as it did not match the magnitude of the price spike.
The US Dollar and Treasuries are the same picture in reverse, with slight differences. The Dollar did not come close to previous lows. It showed massive volume on a daily scale. We would need to push through the demand zone on regular volume to confirm the bearish trend.
The same is true for treasuries.
Prophet (a clever automated TA from ThinkOrSwim) threw up a new target for the bullish move. It detected a potential triangle breakout, with a target on SPY above 140 (corresponding to above 1400 for the S&P 500).
The tool is automated, thus unbiased and has a very good track record (see images below). Thus we must respect the target. It also fits with a complex correction that we have seen often in past years.
Almost all previous prophet targets were met, with one exception (click on thumbnails to enlarge).
Technology is still on track for its next cyclical low.