We are coming very close to the IPM turn window. If we have correctly identified the current EW market pattern (diagonal), the market (SP500) should not rise above 1365. This area holds various resistances, ranging from MAs to 61.8% fib retracement. Above all, according to the Elliott Wave theory, current rise cannot exceed 1365 or something much more bullish will be unfolding.
The second (extreme bullish) alternative is a very low probability because we are in an overall downtrend and are approaching a top date.
As a conjecture, we might see a rally till Friday when the EU announces its plans and then the market could sell-off for 1-2 weeks (till the earnings start). This is just a hypothetical scenario, but it would be similar to what happened in October 2011 i.e. market started rallying in early October and topped out when the actual EU summit took place (Do you remember when Greek Prime Minister wanted to hold a referendum??)
Finally, there were some comments about the model and the possibility of a sharper decline starting. These comments were completely rational, as Mike said, it was a tough 40 point ride.
But you might remember that on June 17, 2012, it was stated that it would be interesting to see how the market reaches the end of June/early July top. At that point the rally was so strong that if the market had continued its rise for the next 2 weeks, it would have eclipsed April highs. Since the market had completed the 8/4 test to the downside, new highs were a very low possibility. At that point, I wondered if the market was going to trace-out a diagonal pattern (it was just a guess to align market structure with the probable topping time frame along with sentiment data).
At this point, it does seem like that we are witnessing a diagonal pattern. One important aspect of the diagonal patterns is that no one identifies them until the very end. In current situation, I have not read anywhere on the financial websites that we are in a diagonal pattern, so it is possible that we might really be in one. In any case, next few days are very important. The nature of the current rise and the subsequent decline will tell us about the future direction of the broader market.
-- Critical Level: 1307. Break below this level would mean that the broader downtrend has again exerted itself.
Personal Note:
Believe me, trading is a tough/stressful job. Whoever felt anxiety during the last decline is in the same boat as me. I was stressed even with model and algorithms. I can only imagine being in the shoes of people who have thousands of dollars in 401Ks and who watch the market decline 100s of points.
The second (extreme bullish) alternative is a very low probability because we are in an overall downtrend and are approaching a top date.
As a conjecture, we might see a rally till Friday when the EU announces its plans and then the market could sell-off for 1-2 weeks (till the earnings start). This is just a hypothetical scenario, but it would be similar to what happened in October 2011 i.e. market started rallying in early October and topped out when the actual EU summit took place (Do you remember when Greek Prime Minister wanted to hold a referendum??)
Finally, there were some comments about the model and the possibility of a sharper decline starting. These comments were completely rational, as Mike said, it was a tough 40 point ride.
But you might remember that on June 17, 2012, it was stated that it would be interesting to see how the market reaches the end of June/early July top. At that point the rally was so strong that if the market had continued its rise for the next 2 weeks, it would have eclipsed April highs. Since the market had completed the 8/4 test to the downside, new highs were a very low possibility. At that point, I wondered if the market was going to trace-out a diagonal pattern (it was just a guess to align market structure with the probable topping time frame along with sentiment data).
At this point, it does seem like that we are witnessing a diagonal pattern. One important aspect of the diagonal patterns is that no one identifies them until the very end. In current situation, I have not read anywhere on the financial websites that we are in a diagonal pattern, so it is possible that we might really be in one. In any case, next few days are very important. The nature of the current rise and the subsequent decline will tell us about the future direction of the broader market.
-- Critical Level: 1307. Break below this level would mean that the broader downtrend has again exerted itself.
Personal Note:
Believe me, trading is a tough/stressful job. Whoever felt anxiety during the last decline is in the same boat as me. I was stressed even with model and algorithms. I can only imagine being in the shoes of people who have thousands of dollars in 401Ks and who watch the market decline 100s of points.
