Monday, May 4, 2009

Market Pattern Update - Likely More Near Term Upside

Click on Chart to Enlarge

I just wanted to show a chart with the price pattern that I have recently referenced that has suggested the possibility of a significant further rally before any major retracement. With today's move to new highs, I think this is now the most likely scenario.

When this rally started I had suggested that if the market was forming a triple three correction, the most likely ending pattern would probably be a contracting triangle, which could be either horizontal or a rising wedge type triangle.

The fact that the S&P 500 exceeded the 880 level makes it less likely that the pattern since October's low is technically a triple three. It may be an expanding triangle instead where waves A, C, and E get progressively longer in % gains. While I may make a post very soon regarding expanding triangles, I will just say that the E wave (which may be what we are in now) tends to be VERY directional and is usually a complex correction from a wave theory perspective. The fact that this upward rally is taking so long and is not really looking like an nice wedge, I would guess that a complex correction is occurring (i.e. ABC-x-ABC) as the E wave of an expanding triangle.

On the chart above I have the recent sideways action labeled as a contracting (upward slanting and hence very bullish) triangle in either a "D" position or an "x" position. In both these scenarios I would expect further upside from a pattern perspective. The 940 level would probably be a cap on the advance if the pattern is a large rising wedge since March's low. If the pattern since March is a complex correction, then I believe that should allow the market to rise even further over the next few weeks (say to 1000ish on the S&P). As I mentioned in the weekend post, as a pattern concludes, possibilities should become limited for what can happen, and we should be able to zero in on a coming "top." Since in either case above we are past the halfway point of pattern development, I think that things will get progressively clearer over the next week or so from a pattern perspective.

This time may provide nice very short-term trend trades, but probably won't register enough of short-term extremes for me to suggest trades for the blog. However, in either case above, I would expect a very significant top to form within the next couple weeks (almost certainly this month) which should make for a good bearish trading opportunity.

So don't expect much in the way of blog trades in the near future:)


  1. Trading seems very dangerous right now. I would say price pattern suggests upside over the next several days or couple weeks, but today is triggering several overbought readings on short-term indicators.

    Cumulative intraday NYSE TICK (sum of last 13 half hour closes of the TICK reading)is near 4000 which is very high.

    Intraday TRIN reading is very low, which is typically short-term bearish.

    ISE put/call ratio hitting its lowest level in weeks so far today. This is a good contrary indicator and this would be short-term bearish typically.

    OEX put/call ratio is spiking to the highest levels intraday in a good while. This is smart money, so they buy the puts as the market rises "too much."

    Also the short-term model I use for trades is nearing overbought.

  2. Short-term model just hit overbought. NYSE intraday TICK is VERY high on par with past short-term highs. Probably time to exit short-term trend trades and wait for some consolidation.