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Market Report: All Eyes on New Highs Part III


In the last report I was looking for a bit more downside, then setup for a move higher. http://www.wavepatterntraders.com/all-eyes-on-new-highs-part-ii/

For the best part that's exactly what we saw, with the rally late last week it should now setup for a move higher now for the final piece to this suspected ending diagonal that has been in progress from the Oct 2014 lows. Whilst there is a way to count the pattern completed, based on the recent sideways chop, I favor more upside and make a new high above 2134.

SPX Chart 1
Larger Image

The slow grind to the upside is a classic characteristic of the ending diagonal so unless the bulls have a surprise left, we are still going to work this idea and look for a bit more upside towards 2140-2150. Short term staying above 2072 would still support more upside, should the market decide to take a slightly different route to what we expect.

SPX Chart 2
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So where does this pattern fit in on the long term time frame? I suspect based on the length in both time and price, the odds would favor its ending a large 3rd wave, so the move that started from the Oct 2011 lows I think is potentially now coming to an end. So the next expected move would be a decline to around the 1800 area.

Short term our focus is really on the move that started from the Oct 2014 lows, if the wedge shape persists, then I think its setting up for a much larger decline, the target area for wave 4 should ideally test anywhere around 1750-1800 in 3 waves before setting up for a move higher for wave 5. I would expect we see something in the order of the decline we saw in 2011. So a good trade for swings traders, as the current market has not really gone anywhere and those that are benefiting are the short term day traders as the swings we are seeing are not ideal for the buy and hold trade or the swing traders, but I still feel a decent size decline is setting up, so an autumn swoon is likely on the cards. So the month of October could well find ourselves looking for a low for wave 4. For now we will stay focused on looking for a bit more upside then start looking for sell setups again.

Oil (USO)

Oil now potentially could have a high in place for wave [4], if it remains below 21.50 then I favor more weakness, although at this stage it's still stuck in a range we can't rule out a minor new high to retest the highs again, but overall once wave [4] is finished I suspect we are still going to target new lows for wave [5] and target a move under 15.00, that area will offer a the better buy for swings traders, although we managed to find the recent low near $42.00 on the CL contract, the messy upside is supporting the idea of a 4th wave. So whilst we have been bullish for the last few weeks, it's now that I am turning my attentions to looking lower and looking for the 5th wave move to new lows.

USO Chart
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Gold (GLD)

The messy upside is not exactly a strong sign for the bulls, whilst it could still see a push above $1232, I tend to favor that GLD could well be inside a small triangle so I am watching a couple of areas just above, if it fails at the 116.50 - 117.50 area, then I would tend to favor the triangle idea, if it pushes above 117.50, then I would favor the idea of a move to test 118.50-119.50 to complete a more complex WXY correction for wave [b], then setup for a move back under 109, so the Gold spot price would see a move back under $1131 to finally end wave 5 of the ending diagonal pattern we are working.

GLD Chart 1
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SPX Chart 2
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Until next time,
Have a profitable week ahead.


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