Gotta Have Faith
Dominick
April 6, 2008
In typical
fashion, the week closed at a crucial area that will determine whether there’s
still one more new high in this rally or it’s now time for consolidation,
leaving the decision to this new week.
Still, we have the ultimate resistance level for this move and the
numbers below that will trigger a more serious correction.
Ironically, the
sentiment this weekend is decidedly more bullish than last week. Remember that despite the overwhelmingly
bearish attitude amongst traders after the previous week’s close saw the
indices slip to their lows, my last update said our trading this week would be
based on charts that “suggest the market is closer to near term support than
falling over the proverbial cliff.” As
the chart above shows Monday morning found support at a double bottom and
rallied strongly – not the first low we’ve bought.
But, though the
first day of the week did end higher, it was with renewed selling pressure that
again had the bears eager to short ahead of a collapse. Instead, we believed price was retreating in
the final move of a wave 2 retracement and that the situation would be
clarified in overnight Globex trading.
Sure enough, GLOBEX found support at 1315 and rallied to 1333.25, which
was near enough to our longstanding 1333 pivot to have us TMAR (take the money
and run).
Taking profits is
always nice, but members around the world trading that GLOBEX session with me
were advised to re-enter longs on any price improvement above 1333. If our interpretation of Monday’s close as a
wave 2 retracement was to be confirmed, it would mean a powerfully impulsive
wave 3 was due to follow. And though the
bearish sentiment was ripe for a squeeze, there would have to be some catalyst
to trigger an explosive rally. As so
often happens, news “coincidentally” appeared to make the predictions of
Elliott wave come true. In this case it
was the Lehman Bros. share offering which, as it was digested that night, came
to be seen as a sign Bear Sterns’ implosion would be the worst of the credit
crisis. As you can see from the chart
above, Tuesday’s huge gap open got the wave 3 rally started nicely.
There are many
traders who doubt technical analysis and the Elliott wave principal, but what I
see in chart above is fundamental traders trying to rationalize away the rally
on Lehman’s dubious equity dilution. As
you know, Tuesday’s session ground higher
and higher all day while the doubters looked for opportunities to fade the move,
only to be completely run over with every new leg upward. At 4:30 Tuesday afternoon, the market was 50
points higher than the previous close, a fitting reward for those with faith in
their charts. Perhaps more importantly,
though, the rally had gotten us above an important line in the sand that had us
at first constructive for further gains.
As mentioned
several times recently, its important to understand short term trades in
context of the big picture. The chart
above show that while looking for Wednesday’s market to extend it’s gains, at
least intraday, long term resistance loomed above and this would probably be
the trigger for a fourth wave consolidation.
Though Elliott
wave theory is an important part of our technical analysis, it is not our only
means of understanding markets and planning trades. The March 23 update, in particular,
emphasized the value of our proprietary targets. The chart above shows that while Elliott
purists scrambled to count the internals of a fourth wave, we relied on price
action at our numbers to paint our attitude about the market and to get in and
out of positions.
Even though
support materialized perfectly at one of our target levels, most of the Street
was getting cautious ahead of Friday’s job’s and unemployment data. As you might expect, we didn’t have much of
an opinion about the report either way, but expected price action on our charts
to give us reliable information to trade. Friday morning’s GLOBEX session was
another useful exercise, as futures ping-ponged between our numbers. Just ahead of the data, the market had
rallied to within five points of our final target, where we had sells orders
waiting. Despite the worse than expected
report, the market quickly jumped to tag our number, get us in short, and then
decline 20 points in a single five-minute bar – not a bad way to start the
day!
Friday’s session
affirmed the GLOBEX activity with one important difference: the new highs
intraday never quite extended to our final target level for the move and
instead ended just above a key technical level that would suggest further
consolidation. The market therefore
remains poised to move in either direction.
Members and astute readers of this update know our levels below that
could open the door to a violent correction, or act as support and confirm a
more bullish outlook. But in any
outcome, having faith in our charts and analysis of them, we believe we have
the key information that will guide us to profitable trades.
Are you ready to breakout from
bias and trade these volatile markets come what may? The opportunity to join the TTC community of
traders is slipping away from retail investors.
We originally thought we would close the doors to new retail in June or
July, but I've decided to move that up closer to May 31, Memorial Day weekend.
If you're really serious about trading learn more about what TTC has to offer
and how to join now.
So, do you want to learn how to
trade short term time frames? Would you like access to next week's charts
posted in the weekly forum right now? Ten to twenty big picture charts are
posted every weekend. If you feel the resources at TTC could help make you a
better trader, don't forget that TTC will be closing its doors to new retail
members on May 31,2008 . Institutional traders have become a
major part of our membership and we're looking forward to making them our
focus.
TTC is not like other forums, and
if you're a retail trader/investor looking to improve your trading, you've
never seen anything like our proprietary targets, indicators, real-time chat,
and open educational discussions. But the only way to get in is to join before
the lockout starts - once the doors close to retail members, we'll use a
waiting list to accept new members from time to time, perhaps as often as
quarterly, but only as often as we're able to accommodate them. Don't get
locked out later, join now.
Have a profitable and safe week
trading, and remember:
"Unbiased Elliott Wave works!"
Dominick
a.k.a. Spwaver
TradingTheCharts.com
This update is provided as general information and is not an investment recommendation. TTC accepts no liability whatsoever for any losses resulting from action taken based on the contents of its charts, commentaries, or price data. Securities and commodities markets involve inherent risk and not all positions are suitable for each individual. Check with your licensed financial advisor or broker prior to taking any action.
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