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Friday, January 13, 2017

Market update for Friday The 13th

Market update for Friday The 13th

What started as a simple update has turned into an extensive market update, so bear with me and excuse the typos.

My call to sell into Wednesday's close worked out pretty well, but I'm still left micromanaging the trade using 5 min charts. This is what most traders resort to, when they lose sight of the big picture, so I'm recommending caution here. Yesterday's sell-off was nothing to sneeze at, but I'm already focused on next big move. 

 Trading these very short term charts is often "a fools errand", and these are relatively tiny moves, even on the Russell 2000 ($RUT), but I suppose they add up if you know how to trade a broadening triangle pattern - the pattern I predicted weeks ago. Of course if you don't know what a "broadening triangle pattern" is you were probably lost from the start... Regardless, the Russell has been good for 5 trades in a row; (A)-(B)-(C)-(D)- and yesterday's continuation of wave (E), total well over 100 points.  

Short term: The big question becomes: "is the market finished consolidating in wave 4", and did we miss the bottom? This is what most traders, and investors are afraid of, and most traders are usually wrong. 

On the next chart, you can see the #SPX was bought at yesterday's lows - at the bottom of the bullish channel - watching a more reliable 2 hour time line. Short term resistance in red.

Now let me show you an alternate EW count (on the chart below), which is another wave b (head-fake) in an extended correction - marked "Alt: 4". Doesn't even look like a broadening pattern, right? This points to the little triangle we've been watching - on the 5 min view, actually being a bearish wave a in a larger correction. This is why you need to chart everything, using every timeline you can. It ads up to a lot of charting, but like anything, you get out of it what you put into it. I see 100's of traders on twitter spewing opinions, without any charts to back it up, and 99% of the charts I do see are absolute crap. Even most the so called pro's can't chart intelligently. On the other hand, the hedge funds, have 100's of skilled technicians, and quant trading programs on their side. It's the unseen hand that moves this market, and staying on step ahead, is a handful.  

 This is a tough call to make, because as I explained in an update last week, "wave B's are hard to predict", and now the RE count on the 5 min chart is called into question. There's a good chance we've already seen the bottom in wave B (on the S&P), and wave E on the $RUT, but I believe there are more reasons to expect another washout, ahead of OPEX, next Friday. From there, I would expect a little relief rally going into inauguration day, but that could be short lived.  
  1. Wave E is a panic wave, yet traders were quick to buy the dip. A little too quick I think. I'd like to see more fear in the market, ahead of OPEX. The $VIX has hardly even budged...  
  2. Wave c of E should divide into 5 waves, and so far we've only seen "iv" (looking at the 5 min chart).
  3. There's a good chance, the inauguration next Friday is going to be a sell the news event. 
  4. The longer term charts point to a bigger correction. 

So in short, I'd be a seller of this bounce of yesterday's lows. If we can build a proper base I'd expect to rally next week, and possibly trade into a bearish wave b.

The opening bell rings in 2 min, so I'm out of time. 
Take care, until the next update, AA 

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