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What we have seen over the last few days has been a relativity orderly retreat as a result of some profit taking. That is what happens after a good run.
Let’s look at the DOW:
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This is a busier chart than I would normally use whether that be for myself or a published article. But let me take you through it. It is a 90-day Elliott line chart with a trend line and an oscillator. You can see the very strong run up since October last year and the trend has been underscored by the simple trend line, which connects in three periods.
At the time of writing (Wednesday, and therefore only including data up to Tuesday), we have seen a few soft days, which the media is tagging with ‘first grab’ words such as US job figures, slowing China growth, bailouts in Europe and the like.
This is predictable but what is even more predictable is that after such a big run there will be a pullback. It is like night follows day! The only unknowns are when this retreat will happen, how deep will it be and how long will it last.
I have limited data but one thing that caught my eye was the oscillator and how it spiked down overnight Tuesday and so what I will be watching closely in the next few days is how low this oscillator might go. And at the same time we will be watching the break downwards of the trend line. If we see a break down then profit taking may just gather pace and we will see a new impulse pattern develop downwards. But we don’t have to make that call now.
If the market holds around these current levels we may see some consolidation and then an attempt at the wave five high. Wave fives are much weaker, shorter in movement and time than the long wave three. However, I have always found it quiet easy money as there is considerably more predictability of oscillators holding etc.
We see a confirming picture for the S&P – always good to identify co-incident patterns.
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But in all this I cannot resist the simplicity of a big picture line chart:
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And this says to me we are probably due for a bigger retracement than the one suggested in the first chart.
Somewhat I could not be tempted to go long in this market.
Enjoy the ride
Tom Scollon |