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December 09, 2006

Market Update: The SandP Keeps Going like the Energizer Bunny!
by Dominick

The Nov 18th update stated:

Next Friday we have the payrolls report, but that's just another nonevent to take up airtime and the waste the week away. After that, Bernanke and the FOMC meet on the 12th - another snoozefest ahead of that day. Grab some pillows if you're going to be watching that. And then ... then we have Xmas. But what we won't have is the usual tax selling. The smart money has been long for the last 200 points. Anyone who bought the summer lows or got on along the way is not going to sell this market until January 2nd. Now that's a day to mark on your calendar!

Until then, we have 3 perfect patterns that support a few knee jerk reactions off the payrolls and the Fed, followed by plenty of Christmas shopping. On the downside, we have only 1 setup, and it's not a high probability yet.

We had bought last Friday's low, but sold it into the bell to book some quick profits.

When nothing changed over the weekend, we decided to continue trading the market long like it was the Energizer bunny. After all, our preferred Elliott count on the SPX needed to see an advance to 1415/1419, as shown in the chart below. We did get a few ticks above that on Tuesday, but didn't have all the wiggles we needed to confirm the pattern. The next day, we found ourselves crying for action as we practically fell asleep watching the index trade between 1411 and 1415. I can only imagine what trading was like thirty years ago! By Wednesday night everyone had figured out how to scalp a range, but then everything was about to change.

I posted to the site before the market opened Thursday that "something seemed fishy", and boy did it! The gap up gave us that wiggle we needed and then down she went. Our instant target was 1410.50 on the futures and that turned out to be two ticks below the actual morning low. Friday morning was another trader's dream as we faded the pre-market pop from the payroll data since we had a lower target as shown in the chart above. No sooner had we jumped out from that box as if it was a pot of hot water than CNBC came to the rescue with its so-called "news". Someone was speaking and ... blah blah blah ... the dollar turned up.

Now, as a pure technical analyst, it makes me laugh to hear all the excuses after the fact. I had mentioned in our chatroom that a reversal was our plan and, practically on demand, we got a 10-point move. If you ask me, the dollar turned up because it was entering a 4th wave bounce. Personally, I think the dollar is going to fool a lot of traders in 2007, but I'll get to more of that after the new year.

Thanks to Vince's commentary, like the one below, there was also a great Bond trade from Friday's payroll report.

For now, we've reached the point where it starts to get exciting. We saw call buying on the rallies again this week, and the bearish camp got a little quieter, which are contrary indicators for sure. So make no mistake, we're closing in on the sweet spot. I still have three working ideas, one or two of which can be almost immediately removed on Monday morning because we must either advance into the Fed meeting or sell off. The preferred pattern has a target of 1429-ish, possibly for Tuesday or Wednesday, but the larger patterns would see even bigger numbers towards the first week of January after a bit more work to the downside.

Either we're going to make the Fed the pivot to this ending leg, or we'll work lower until the Santa Claus rally kicks in. Narrowing down the patterns on Monday will allow us to time our moves with more precision, but, to really capture these moves, you should join now and read all the real-time analysis. A special money-back offer for today's readers appears at the end of this article.

Have a great weekend!

Dominick

In last week's Monthly Newsletter we showed the chart above and commented that, due to recent price action and a potential 5th wave ending diagonal wave structure (outlined by one of our analysts who had a target high of 114-25), we were looking for a near-term top in the US bond contract. This week, traders did take the contract lower in front of Friday's employment data, which, despite benign numbers, actually saw further selling (-24/32s Fri) and a break of the important lower diagonal trend line from late Oct. The contract settled at 113-10, right on top of the 3rd wave Sept high, which could provide some near term support. However, with 5 waves up complete and a break of the diagonal, selling pressure could push bonds down to the longer-term trend line support drawn from the July lows, around 112 even. These critical technical levels face traders just in time for the FOMC meeting on Tuesday.

Vince.

Grains

Our top call proved to be perfect. Soybeans dropped 20 points on Monday, which was worth $1000 per contract for that single day. We expect some retrace/consolidation and then on to our other target.

Metals

Make sure to read Joe's Precious Points updates as he nailed the top tick so far in the silver futures contract.

Google

Google reached our first target at 506 and closed at 480. Is it done or does it reach the second target? Stay tuned.

Oil

Looks like oil made its low 15 cents above November's newsletter target of $56.90 and is now trading below its recent high of 63.80. This is an important week for oil.

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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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