Page menu

Wednesday, November 30, 2016

Calling a Market Top After a Breakout

There are few things as difficult as calling a market top after a breakout 

Seems like ages since I've blogged, but with the election, and getting used to running 2 twitter feeds.... (traders who follow me @3xtrades get market updates in real time) and what's the point in blogging when the market endlessly consolidates sideways through the summer..? It was horribly choppy, and somewhat unpredictable, but thanks to the $VIX charts we managed to stay on the right side of the trade most of the time. In fact I've remained mostly bullish since the last blog update. We even caught the futures crash on the Trump win, and the bullish reversal, so things could be worse.

Trading has picked up since the Trump win (which removed uncertainty), followed by the typical short covering into the Thanksgiving holiday. Volume remains light this week, and todat we're seeing a short squeeze in Oil, and another new high on the Dow today, as well as the $SPX.  

Oil has traded into a bearish Head & Shoulders pattern, and I suggest selling what's being called, "historic OPEX news". $WTI failed to breach the right shoulder, but may touch $50.

The $VIX remains oversold. The Dow looks toppy, and regardless of what the financial networks are telling us, the broader market is not trading at new highs.
At least the $NYSE isn't... markets are disjointed, and I suspect manipulated as always. Traders are still on vacation; volume is light; $VIX easily hammered.

The Dow broke-out, but the dow doesn't represent the broader market. As the title suggests calling the top on a breakout market isn't easy. If this is it, the pattern points to a broadening top, or a megaphone top. The $VIX will decide which pattern is correct.

There are 2 kinds of traders; those who let their emotions dictate their trade, and those who trust the charts. We let the $VIX tell us what market sentiment is and leave our emotions out of it. When the $VIX starts popping you know there's fear in the market. Right now there's too little fear... read my blog entitled, "Trading The VIX". Markets are cyclical. I know of no better way to trade.

My position has not changed sine the August 2015 crash. Higher highs in a broadening top. 13 months later, we see this pattern playing out on the $SPX

The $SPX could touch 2220 in wave "3"

To be honest: Calling the top in US treasuries was a heck of a lot easier.

I could be early on this market top, but I could also provide more evidence that this is the top. See the public charts area.

Dec is a big window dressing month, and we could see a re-balancing going into the end of the year, as we did last year. Emerging markets have lagged, so we could see a sector rotation. We also have the Dec. Fed meeting coming up (Dec. 13 - 14). That's going to bring with it, fear.

Final note: I'm planning to revise the membership website, and purge non paying followers from the private twitter feed. Any thoughts on appropriate pricing appreciated. Chime-in in the comments area, or send me a message @3xtrades.

No comments:

Post a Comment