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Market Report: Land of Chop

US Markets

The markets went nowhere in a pretty flat week, they closed virtually where they opened, so no real clarity on the market direction, although we were working a few ideas going into last week, we think we are getting closer to a potential pattern or 2 patterns that should lead the way higher and see more upside from here.

Earlier in the week, I have been focusing on the 1306ES are on the ES contract, and we actually saw that hit in the globex session, but there is a potential to see that area again with a new move lower, although we have to respect the fact the market may have indeed put in a low.

In last week's article, you will note that I had been focusing on an area of fibbo support from 1310SPX to 1295SPX the market, almost made it to that area.

Fridays move, never really conclusively confirmed that a low was in place, as it held just under the 1332SPX resistance are and a down trending trend line, so it's all about globex over the coming hours, we have a key area that we confirm or negate this pattern, or at least help us stay on the right side of these markets, as we have seen some nasty swings of late, which I am sure are hurting traders.

One idea is that the low is not in place and we need to see that 1306ES area, over the years I have noticed the cash session likes to visit any areas seen in the globex session, so this idea whilst a little stronger than I would have liked on the upside, is still a setup that can see lower prices early next week. We initially were looking for a 1327ES if this was to be a 4th wave of a ED.

In order for this idea to become viable, globex will need some weakness early on Monday and stay under our key areas to help strengthen this idea.

The alternative is that last week actually put in a low and we are working one of a couple larger ideas, but it really comes down to any weakness in the globex session over the coming days.

Larger Image

One of the reasons, that this setup could be seen, is although it looks a little stronger on the NDX and SPX, the DOW don't really support a stronger bounce from the lows seen last week, and the general look still seems to be wedging on all 3 major markets, if you look at the bounce in the DOW, it seems more like a 3 wave bounce as opposed to something that could be the start of something to stretch higher

Although in order to suggest a new low, we need to see a move under key supports area to embrace the idea, if not the low is likely in and higher prices likely.

The Bearish idea not shown here is that of a series of 1s and 2s, but I tend to think that's getting stretched as unless you see a very aggressive move lower, the evidence atm is lacking in conviction that an aggressive move lower is indeed setting up, although we will be monitor price action and trade accordingly, as the ideas shown here, are just ideas, as the market moves we will move with it.

Larger Image

If the low is in, another idea is that the markets could be in the 5th wave of an ED, as its clearly wedging higher, with a target towards 1390, this idea can still be possible if a new low is seen next week under last week's low, with a new high there would be enough gyrations to label it as a completed pattern, and thus end the rally from March 2008 as a larger ABC correction.

Larger Image

Overall the markets can still potentially see a new low towards 1306ES, but if we see strength on the markets early next week, the potential for a 5th wave for the ending diagonal idea is also an idea we are watching, the key to the pattern will be if it wedges, there is still the potential for the other ideas I showed in last week's report, as this week was flat, so offered no real edge. The key to the ED idea is if price starts chopping higher and continues to wedge, that's an important key feature.

Most traders are aware of the US$ influence on the markets, and its also something that needs to be watched, as we see weakness in some markets like silver and oil but some strength in stocks, so not as clear as we had hoped, early next week should hopefully clear a trend and help define one of the working patterns.


The potential for gold to see a new high is something that might be being suggested from the current sideways chop, currently with 3 waves, this has the potential for either a ZZ, flat or triangle (as shown) but the Bulls still own this market, as until this is below $1440, the 4th wave option, so we are closely watching for a some trading opportunities next week

Larger Image

There is Bearish alternative to gold if we were to see price push under $1440 but until it does, we tend to favor more upside from here, but suspect still in an on-going 4th wave.

Until next time.
Have a profitable week ahead.


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