The market spoke again and really stuck it to the bulls this week just gone, the bleed this week was a tough read I suspect for most, although we found it easy as it simply told us its intentions early enough to get us back into bear mode.
From last week's article I was 60-40 in favor of the bullish idea, and we were expecting a gap down on Monday towards the 1200-1190ES area, but we wanted to see a reaction. If you recall we wanted a reaction in those safety markets such as USD/CAD, ZB and DX etc. you never saw that.
What we saw early on Monday was the gap down, but not the expected bounce in order to maintain the bullish view, I think we were bullish for about ½ day before we binned the bullish idea and got back into bear mode, we had been bears before from the suspected trap around 1263SPX/1260ES and looking lower, but in order for the ABC decline to work out as I originally thought, the market needed to prove itself and "show us da money" i.e. an aggressive rally if a low was found.
The bulls had a great setup, but frankly they "blew it".
Last week I wrote:
"I do like the bullish side of this market, if the market can hold the 1190-1200ES. Ideally, a small move down on Monday/Tuesday and setup a reversal."
"I am about 60-40 swayed in favor of a risk reversal trade, but want to see the patterns I am following work out as I expect, but any clues to suggest that is not the case and risk is getting dumped, will have us move back into bear mode and continue to sell risk markets again as we have done this week."
If the ABC idea was the working idea we needed to see an aggressive reaction, we got a bounce as I suspected we would, off the measured [c] = [a] target, but the lack of movement above 1200ES was a big problem, I made it known that failure to get above 1200ES was a big issue for the bulls. If I recall it hit 1197ES twice in globex and went to test near that in the US pit session hours, but it failed, and the structure was poor. That alone was a warning sign, a weak and pathetic bounce from the bulls, clearly they were not supporting the market and had no intentions of buying, all it was a little bit of short covering.
In simple words, we wanted to see a reaction from the markets to suggest the decline was an ABC, the bulls never got enough strength behind themselves and the bears smashed it lower, the failure to get back above 1200ES was a big issue for us, we simply could not stay bullish we such a poor response.
I never have any issues about binning an idea and moving on to the next, it's what keeps us on the right side, I see far too many traders fall in love with ideas yet they don't see the obvious rejection in their ideas. Holding onto a bias far longer than you need, not only costs you $$$ but you also miss out on the missed opportunities to make $$$.
So with the lack of a strong move 1200ES, it got us in bear mode and we have remained in that mode ever since, it must be some sort of record for me to be a bull for about 4hrs, (I am naturally a bullish person, I see the good in many things) but I am not here to argue with city hall, if price wants to puke and go lower, that's ok with me, I just go into bear mode, changing suits from a bear to bull and back again is simple as pressing the buy and sell button.
I don't fall in love with ideas and try to twist them to suit my bias the market either confirms or negates the ideas, that's the bottom line, you argue against that you lose $$$.
So now that we are in bear mode for the moment, we think the market has lower prices on the horizon.
I have seen enough damage to warrant staying in the bear camp, as of yet I don't have any patterns to suggest a low could be in, like I did back in Oct before the low on the 4th, then we had a clean 5 wave decline all throughout the month of September in FX risk markets, right now I have no such thing, so it seems silly to fight the obvious downtrend atm, until the market gives me a reason or causes me to be concerned with the current ideas, I am sticking with them, they made us $$$ this week, and we continue to think they will make us even more $$$ next week and for the coming weeks ahead, well that's the plan anyhow.
SPX
With the bleed we have seen this past week, it makes a very good case for that of a "3rd of 3rd" as the continuous move lower in step stair fashion is a characteristic of such a move, the bleeding simply runs over the bulls that try and dip but, yet if you simply followed the stair stepping lower, there was not a need to catch falling chain saws, as I suspect most bulls are finding out, catching chainsaws can be painful.
Whilst I am a believer of looking for a reversal at the end of 5 wave decline, trying to find a low and step in front of the middle section of a 3rd wave is one sure way of losing $$$ quickly, those that realize what last week's was turning into were quick to jump back into bear mode and ditch any bullish idea.
The objective is to stay with the trend, I am all for having ideas, but when those ideas don't do what you expect, you simply have to admit that the idea is simply wrong.
Now if we had fell in love with the bullish idea that we originally had, we would have missed out on the decline and not sold the decline as we did and should have, the very fact that it failed to get back at 1200ES was telling that the bulls were in trouble and we needed to respect that and fall back to the bear idea.
I even to this day don't like the sideways area we saw a few weeks back, it looks like a triangle, but as series of 1s and 2s gives the same impression, now most won't know or even understand that, that's fine, that's what my job is, to make it known to members where ideas are wrong etc, I don't expect members or even readers to understand what a series of 1s and 2s are, as its Elliott speak.
However I am sure that you would have realized that the failure to get above key resistance areas, when you are looking for that move is a big warning sign and you should be raising your eyebrows to the fact the bulls can't muster up a strong move, even the most basic of technical analysis tells you that.
If you note the trend channels and lack of bounces, that is a hall market if we call a 3rd wave, simple trend trading at its finest, using prior fractals and watching the structure on the upside, every time told us the bounces were corrective and to sell them, 5 wave declines and 3 waves bounces are a definition of a trend that is going lower.
Now the market is very oversold, make no mistake, I think the traders make the mistake of using sentiment, indicators and the VIX too much. Structure is telling us, or I should say suggesting that the market can potentially see a bounce.
Fractals
Whilst I look at those areas of technical analysis, I am more of a price and pattern trader.
You can see how the previous bounces still have not surpassed the original bounce that started this move, just by projecting those fractals, we have targets to watch.
When its stair stepping like this, it's a very easy market to trade as until it changes from its current down trend there is no reason to try and outsmart the market, trend trading can be easy when it's like this as weak bounces that are similar on length to the prior fractals bounces offer low risk entries to sell this market.
With the daily RSI well below the 50 area, the trend is clearly in bear mode, last weekend it was just below, but I expected that as if the ABC decline idea was the working idea, then a small push under then an aggressive rally would have sent the RSI back above 50. Of course the rest if history, but even the simplest of basics is telling you the trend is down, so again I see no reason to stay bullish whilst the RSI is under 50 in the medium term (days/monthly trend).
2008 Vs 2011
I originally was looking at this analogue back in the beginning of August, as were other technicians, but after putting in a low, to the exact day on Oct 4th (point 12) as the previous fractal, I then projected a target for the rally, 1240SPX was the upside target I was expecting off the Oct 4the low.
Of course the market never exactly make it that simple, but the market is starting to still mirror the 2008 analogue, whilst I am never a big fan of these sorts of moves, you can't argue with the moves so far, it's a fair comparison to use and one that I think needs respecting.
If the market continues to follow this we still have some substantial declines left, which likely takes out the Oct 4th lows from the last swing high at 1292SPX.
The thin black line was the projection; I have simply added the fractal in the red line from the 1292SPX high.
The scary part about this chart is the rejection on point 13, that's not a good sign from a bullish perspective. I always thought the Oct4th lows would be tested again as the rally off that low was 3 waves which I have highlighted in prior articles.
VIX Vs SPX
Those that only rely on indicators and don't follow price get hurt, if you bought into last week's move and went against what price was telling you, then you are well underwater, that's if you have not already been stopped.
The VIX pretty much has done nothing as the SPX has puked 50 handles; I have to ask, what is that useful for??
At one point is was going down with the SPX, If you traded with that indicator and tried to spot some sort of low, using the VIX alone was as worthless as a chocolate teapot, the same as the NYSE McOscillator. As I write the NYMO is around -100, that is extremely oversold, so with our preferred count, we think it fits in with the idea of a short term low for a small bounce.
All I have read this week is "oversold" so what??? Has nobody heard of staying oversold, or staying over bought, in 3rd waves things stay overbought and oversold, it's what provides the fuel, as bears keep selling thinking lower only to be forced to cover the shorts, that's adds fuel, so it goes up. So as the market goes up it hits buy stops, and triggers buy stops, so the market goes even higher.
The same applies here, the bulls try and find a low, only they are getting run over and forced to "puke". That pushes the market lower therefore triggering more sell stops and pushing it even lower.
Simple laws of supply and demand, which is reflected in price, not some magic indicators, what you see is the real McCoy on the screen, price rulezzzzzz.
Price is made up of traders/investors who create the patterns us Elliotticians attempt to count, the skill of the Elliottician is his/her ability to come up with low risk ideas.
All for on and one for all
Many already know about the correlations in the markets especially with FX markets. You can clearly see that imo FX is leading and stocks are following, just by watching the FX risk pairs, it's suggesting to stick with the trend till it tells us it's got issues, I don't see enough price evidence to suggest that the markets have put in a low or price is negating our current ideas.
The fact that the 6C contract continue to puke lower was another warning sign that risk was being sold, not to mentioned the continued downside moves in AUD/USD and NZD/USD, when the markets are in a "risk off" state, you will see virtually everything get dumped, we don't buy when the markets are "puking" like that, we sell and follow the trends lower.
The easier way to make $$$ is to stay with the trend, the easier way to lose $$$ is the fight it, decide if you want to be on the right or wrong side of the markets, it's your choice.
Conclusion
The market had the chance to make its mark but it failed to get back above key resistance, the bulls had the chance but imo they simply blew it, so atm we are bearish till proven otherwise, in order for us to get neutral/bullish we would need to see price do something to negate or cause us to take a serious look at our current bearish ideas, so far we don't have any evidence, we simply went back into bear mode this week after the failure of the bulls to make their mark.
Until next time.
Have a profitable week ahead.
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