In last week's update, I showed an updated OEX chart along with the following trading idea:
"We are getting a bit oversold here and expect a bounce soon, possibly after putting in another low next week. That bounce is truly going to tell us a lot about where some of these markets are going."
The OEX found its low on Tuesday and spanked the bears as they were leaning too hard on the bearish side. It rocketed from a low of 562, only to top out at 579 by the next day! I'm sure the market once again had the shorts scramble to cover, while leading the bulls to another false rally.
On Wednesday we showed several reasons why this rally should find good resistance, which it did. The chart below shows the simplest of the reasons, which I call "The kid with a ruler". The OEX came up to a channel that it had broken down from, only to make it the high for the week.
The S&P played along perfectly as shown in this chart posted on Sunday night. We commented that if we could rally to 1240, then a drop to where (v) was equal to (i) would target a double bottom. Tuesday morning, the S&P rallied to 1240 and then dropped to a new low missing the perfect target by only 5 points!
Thankfully, we were well aligned looking for a low, as the SPX rallied up in a vengeance tearing up everyone standing in front of it. Along with the symmetry we had in the OEX, the S&P was now finishing a complete pattern off its lows and heading right into price and RSI resistance,
By late Tuesday, many traders were calling for a continuation of the rally, only to see it lose a Fibonacci 62% by Friday. It also seems as Friday's trading has formed a small triangle, which should break to the downside and find nearby support. The markets are playing tug of war, as both bulls and bears fight for this territory. In my opinion, one side is about to lose real soon and the markets will start to trend out of this range.
Our Gann analyst had stuck his neck out with his target of 1220 on the S&P futures for the week of July 24th, as many cycle analysts had been looking for a high towards the end of July. Last weeks low seems to have achieved that target, but he's still confident we should see perfection in time and price next week.
Other charts that were posted in our forum during the week can be found here within the Week of July 17th topic.
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