SPX
Is the correction over?
There is a very good possibility that Friday may indeed have put in a low and now the market is about to rally higher, and ended a 3 wave correction and in Elliott terms what is known as a Zig Zag.
We have been watching a Fibonacci time and price target zone which called for a low either Friday or Monday 14th, with the recent move looking like 3 waves, that is suggesting a correction from the move that started from the Autumn of last year
With the big gap down the bears had the real chance of cracking market support last week, but the very fact that the markets held, suggests the idea that the market is trying to put in a low and a reversal here is likely to post new yearly highs over the coming weeks.
Our key area was not even tested let alone violated, so we continue to look to the upside against that area, even if Fridays low is breached, although we have an area in globex, where we want to see hold for us to buy any dip.
We were watching a small ED (ending diagonal) finish off on Friday before the reversal, and the upside reversal was a good start, although we will need some follow through early next week, to keep the idea alive.
Fridays price action put in the finishing touches to a complete wave count, that if correct, has put in a low and is about to rally higher.
We actually feel that the market had its chance to break far lower and the fact it held strongly suggests the bulls are firmly still in control.
The bears had the chance; well in fact they had 3-4 chances and failed to deliver.
Now nothing is ever 100%, but the very fact the correction looks similar to the correction in Nov 2010 in both price and time has to be considered very Bullish, it will need to see far lower and break the 1280SPX area to change the near term picture.
Although we are going into next week with the idea of a potential low on Friday in place, we will have our guard up in case the market has other ideas.
Being wrong is never any issue with the markets, you simply adjust to price action and reverse your bias, let the market do the talking and follow what the market is telling you.
Based on what we have been seeing and what the market is suggesting, we do think the overall move that started from Feb 2011 is a correction and similar to what happened back in Nov 2010.
VIX
The VIX reversed off the 200 DMA and was a solid rejection and does not bode well for the bears, the fact that price made a new low and the VIX was well below the previous high, is a telling factor that the sell off that the bears thought would happen appears to of being halted, we barely put in a new low before reversing of Friday.
The situation with Japan may play a role in globex come Sunday night, and if you have read the blogosphere you note there is a suggestion of some emails that show some damaging evidence about BAC, they also may play a role, but we will monitor the support areas in globex to see if they hold.
Follow through will be needed early next week, but overall we continue to think the bulls firmly own this market and will likely jump back on board once the predicted disaster that most traders thought has not materialized.
Bears simply never did enough to really damage the market, although a little bit lower could be seen, as long as our key support areas hold, we continue to look higher in this ongoing Bullish trend.
We are not really concerned if it's a bull or bear market, but where the next trade comes from, currently price action suggests an overall dip in the rally that started last year, it will need something special to change the current picture.
We have some key upside resistance areas the bulls need to push above and equally we have some support areas the bears need to break, either way we will trade the direction the market wants to move from here.
DOW
The DOW shows a slightly different idea and that of a WXY count, regardless of the technicalities the bottom line is that the moves so far look like 3 waves against the prevailing trend which is up so its deemed to be a correction, it barely got back under 12k, and appears to of survived a good test, so as long as the markets can find some near term support and stand their ground we think the overall market is showing strength via price, and more upside is likely, we are not interested in crash calls, and predictions that are 4 years out, we don't know where price is going in 2 days let alone the next 6 months.
We follow price not a thesis.
Traders have been mentioning the internals of this market for a long time, but do they really matter anymore?
The title of the article reflects what is most important, and that is "the only thing that pays is price"
EUR/USD
The DX got slammed on Friday as we saw the EUR/USD pair rallying aggressively, we had 2 working ideas at the beginning of Friday, but the evidence see so far tends to suggest the overall move that started last week is that of a 3 wave correction, and most likely seeing new highs above 141 if the 13940 handle is surpassed.
So the Asian and European session should hold some key elements to the strength shown on Friday and see if it follows through and if a 5 wave rally develops from the lows made late last week. We have a key area of support that needs to hold, but we are more interested to see if we get a small 5 wave rally and a small corrective retrace, where we can jump in to buy a dip.
Until next time.
Have a profitable week ahead.
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