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October 29, 2006

NO Signal Yet
by Dominick

The Oct 14th update stated:

If the SPX reverses early in the week, I will be watching its structure as well as where it finds support, to determine its intentions. Since this rally has become quite strong, there is a possible bullish count that will need to go a bit higher from here. That high shouldn't be seen without a 20-25 point pullback first. At that point we will need to decide if the pattern needs the higher move

No need to be guessing, as we will simply want to see a confirmation of a reversal and 1360 act as resistance.

Confirmation of a reversal and having 1360 become resistance never happened. After waiting patiently at this new altitude for the SPX to break out of a triangle, it finally dipped on Monday morning to finish off an E wave and then up she went. Up and up, almost to 1390, until Goldman put the brakes on the choppy trading late Friday and we pulled back to a low of 1375. Funny how few traders believed the initial SPX 1360 call only to get bullish and expect even higher highs last week. But converted bears make timid bulls and the reaction to Goldman's concern Friday shows this record-breaking bull can lose its legs in minutes.

Readers will know of the SPX 1360 target predicted here all the way back on Aug 14th, a time when there were more bears than bulls in the market and many were calling for a four-year cycle low just around the corner. This was back before a serious uptrend created seven consecutive positive closes in the S&P, and before... Dow 12K!

Since that call back in August, we've had a sort of self-fulfilling prophecy in equities markets. A narrow rally converted some of the bears, who in turn fed the squeeze day after day right into the 1360 target. Even into Friday's close, I listened to the Squawk box from Trade the News, to hear a large broker buying a thousand S&P contracts, lifting the index slightly off it's lows. The major indices rallied when the economy looked strong, and then continued to move up when the outlook occasionally became bleaker and rate-cut expectations rose. Everything just had to go up.

And well, on top of that August call being proven correct, it sure was nice to see some other markets start reacting to the levels we've been watching. Look at this chart, which shows the upward pressure on the Dow this week materializing within a channel that stretches back for years. It finally found some selling as we reached it's mid channel.

Our current working count still calls for that pullback from the last update, which now seems to have started. My 60-min Trend chart has officially rolled over at this week's highs and is about mid way through its trip to the bottom. The daily, though, is still pegged to the top since turning bullish back on June 21! If it continues to stay pegged, it simply means to only expect a correction larger than we've had so far.

We don't have any confirmation as of Friday that a top is actually in yet and it's important to wait for the trigger. Even though our working count still has some minor moves to make, this is going to be a tough time to try and wring the last drops of profit out of the rally.

So where do we go from here? SPX 1360 was a Fibonacci target and it was met. Now we have Elliott patterns that have taken over. Friday should have begun the first part of the correction. We either finished or will finish an 'A' wave early next week. From there we expect a correction of that move, then a roll over once again to find support on or around the same 1360 area. But if we've topped, there won't be support there. For the sake of thoroughness, Friday's drop qualifies for the start of either a zigzag or triangle, leaning towards the zigzag so far. After this correction, I see a bit more of an advance but it'll be choppy with lots of ups and downs.

Many markets can now be counted as complete. The Dow Jones composite has reached its Major Fibonacci target and is about to complete its Elliott pattern, if it hasn't already on this week's action. Eric Hadik, who has been one of the few analysts who also saw a bull run this year instead of the traditional October lows, had expected this rally to continue into early November.

Eric has an update in our November Newsletter, so be sure to use the link below to receive it. With the 1360 target met, and the possible completion of a count from the August 2004 lows (possibly as far as the Oct. 2002 lows), we should see some great action soon.

Going forward, keep an eye on November 1st, when some mutual funds might need to do some trading. Payroll numbers have been disappointing lately and new numbers on Friday might also be significant, but understanding the current pattern will suggest the appropriate trade. Jake Bernstein's Sentiment Index closed at 87, still showing excessive bullishness. Other sentiment readings are not quite there yet, but are trending to those levels and should reach them as we top. We continue to expect a larger correction in November. How that correction starts to unfold will tell us if we should expect a year end rally or if it leaves 2007 dangling off the cliff of a dangerous sell off.

Did you take advantage of the SPX 1360 call back in August? Are you ready to make more money from here? This is Dominic, a.k.a. Spwaver, the admin at TradingtheCharts.com. I'm so confident you'll enjoy learning and profiting from our site that I'm willing to refund FULL payment if you don't. Join now for $50/month and if you don't see the value after a week, email me and I will send you an immediate refund, no questions asked.

Right now, the forum is being loaded with support and resistance levels to let you know when an important turn is in. I have also posted some great Fibonacci dates that cluster in November, but those charts are only for members.

The November issue of our New Market Newsletter will be out this weekend. Use this Market updates link to signup and receive the email update. And be sure to send the link to friends! The Monthly Newsletter is packed with Market analysis from many of our contributing Market advisory members, including Jim Curry, Tim Ords, Glen Neely, Richard Rhodes, Andre Gratian, Bob Carver, Stan Harley, Chartsedge, Stock Barometer, and many more. Join our forum to get real time analysis of the markets each and every day.

At these levels, the markets require constant analysis of their chart patterns and we continue to do that every day with methods like Elliott wave, Gann, Delta, and proprietary indicators. We cover the U.S. and European Financial Markets, Currencies, Metals, Energies, Stocks and Commodities. Market analysts are always welcome to contribute to the Forum or newsletter. Email me @ Dominick@tradingthecharts.com if you have any interest.

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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