Technically Speaking – Looking Back and Forward a Week
Technically, the markets were picture perfect with Thursday’s decline being a 3-wave corrective move off of new highs (5 wave structures) put in place on Tuesday and Wednesday. Friday’s “cast all worry to the wind” rallies were 5-wave advances. Based on this the trend remains firmly in place – and that is “Up”. No question about it and whether or not many participants care for it, desire it, can relate to it, or find it in any way objectionable or politically correct the bottom line remains the same – it is for real and it is happening.
Does this change any of the warning signs discussed last week – the “glaring” signs that are flashing wildly. No in my opinion the warning signs have not been displaced however, they continue to be ignored or muted by an overriding factor of complacency and unwillingness to accept the truth. It is not out of the ordinary really – human nature avoids facing the truth until it becomes so painful or unbearable that it can’t be ignored and disputed any longer. Why would anybody believe that this time around we (human beings) have become smarter or more resilient or more capable of dealing with “it.” It being the great fear of the unknown, of accepting facts, of educating and preparing oneself instead of being “blindsided” or more accurately “blind sighted”. I’ve said before and I’ll say it again – People do not learn from their mistakes – making us doomed to repeat history over and over again. How does that cycle of incompetence stop – in my humble opinion it would start by educating you rself and stop depending on someone else to lead you to the promise land. Learn to deal with and overcome fear – (false evidence appearing real).
Instead it has become much easier to play the blame game after accepting under false pretenses or downright lies that “this time is different” or “there are safeguards in place to prevent it from happening again.” Bull – pure and simple bull! If that was the case the safeguards are being ignored and therefore relegated to failure. Don’t believe it – just follow the news and watch the blame game swirl around the globe yet again.
Back to the technical picture for the markets:
Broader indexes: Last week the DJIA broke to a new high reaching 17,151 on light volume and under extreme overbought readings. The SPX pushed to a new high on July 3rd at 1985 the futures (ES) came within a tick of moving to a new contract high last week at 1978. The NDX sits just below 4000 having reached new recovery highs last week at 3947 and in the future (NQ) 3941. Both the SPX and NDX experienced light volumes but the futures (ES, NQ) did manage to add some stronger 2-way trade as earnings announcement continue to hit the street. The RUT sits well below it’s high reached on July 1st and by my count has completed a clean 5-wave structure down into Thursday’s lows. This strongly suggests that the RUT has completed the initial leg down of a larger correction, one that the other indexes have yet to begin.
Thursday’s about face in the markets was primarily brought about by a continuing political and military action in the Ukraine and Gaza. The failure of any follow through was surprising to say the least since both situations remain unresolved and continue to add uncertainty to an already teetering global situation. But here’s the skinny on the technical picture. The markets reversed in a clean 3-wave decline for the DJIA, SPX, and NDX which concludes that additional new highs are likely before any more serious downside action is seen. While failures are possible and to be honest can not be discounted within the current situations continuing to unfold in the Ukraine and Israel and Gaza, on a technical basis it would more than likely take the markets by surprise and produce a violent (more so than what we saw on Thursday) reaction as the next mad dash scramble for the exits ensues.
The Treasuries saw “flight to quality” type moves on Thursday of last week as the 30-year bond rose over a point. The 10-year note also moved higher but has been more reluctant to push back above 126 (basis the front month future). Friday’s reversal of fortune over in the equities markets did not overwhelm the treasuries even though both the 30-year and the 10-year were lower, however well above the lows of the week of the past 3 weeks. The chart patterns for both continue to suggest additional upside (higher bond prices – lower yields) is needed before the next leg down (lower bond prices – higher yields) takes over. The 30-year bond could easily get within striking distance of the 140 level on an increase of global tensions with the 10-year note still taking a more reserved route which would pop prices above 126 but the sustainability of remaining above that level is not very strong. Either way I suspect both the 30-year bond and the 10-year note will remain active until there is resolution on a global scale.
Gold rallied strongly as the correlation between the US dollar and the Euro plus the downing of MH 17 took hold on Thursday. The pattern in progress prior to Thursday’s events was not that convincing that gold would not continue lower with a move to stronger support at the 1260 area coming into play. Technically, the decline off of the $1346.80 high on the 10th of July has formed 5-waves down on the hourly chart with Thursday’s “flight to safety” rally to $1326 reaching Fibonacci .618 resistance on the nose. For next week the market would need to break below $1304 to suggest a resumption and a finishing decline towards the $1260 area was underway or break back above $1320 with follow through to suggest the pattern will ultimately produce a “flat” A-B-C decline from the $1346.80 high. Either way, the futures should continue to provide solid trading opportunities and 2-way trade.
Steer the course and don’t compare yourself to everyone else. You are not they and they are not you. Remember to trust and believe what makes you unique at this moment in time and in this situation and allow others to choose for themselves. Don’t be swallowed up by the chaos and false emotions swirling around. Remember it’s just a number.
Trading the number remains key to being able to reduce and separate the “noise” from opportunity. This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the “chaos” and by trusting the mechanics of your strategy, be able to take advantage of them.
Opportunity continues to knock on our doors. While it doesn’t come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.