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Monday, May 1, 2017

Market Update 5/01/2017

Short-Term Bullish - All Things Considered 

  1. Monday is the first day of the month, and that means money has to be put to work. 
  2. The $VIX is showing few signs of life. 
  3. The very short term trend on a 5 min chart remains up. 
  4. The typical short covering we usually see this time of year, including the dash for trash - going into the start of the Summer (Memorial Day) starts now. This could be good for beaten down sectors like energy, and lagging sector biotech, and a few beaten down names, but not necessarily the broader market. Sector rotation possible. 
  5. The $SPX fell just short of making a new recent high (2400 on the S&P), but this doesn't look like a reversal. Looks more like bullish consolidation (very short term). 
The recent high I'm talking about (above) is the 2400 top on the $SPX, I called so precisely last time, and that's worth mentioning, because I didn't see anyone else get that call right, and if you appreciate what I do, then I suggest you make a donation to my PayPal. I started this update Sat, and finished it up this morning; took 3+ hours in total, to give you an idea of the time involved; not even including countless ours charting every sector, and tracking markets in real time. I'd like to continue bringing these updates to you, and that requires a lot of due diligence on my part. Please do your part, by helping to support this website. To those who already donate to my PayPal (linked), thank you. 

Getting back to my bullet-points: Re: #5. Technically speaking, we can't confirm a continuing bull run, because the SPX hasn't broken out, yet when you see new highs within reach, another breakout is the probable outcome 99% of the time. Not sure about this time. Financials look like they're in a bear market, but that's not to say we won't see them continue to rally higher (in the short term), before we see the reversal. 
Re: #1: We could see MM's (money managers) continue to sit on their hands for a few more days, but that money still needs to be put to work before they go on vacation. 

Very Short term: 
Good chance we could see the $VIX make another run at Friday's high, and even break above the tiny triangle pattern I so correctly predicted on Friday. This turned out to be my best call of the week? A 9% move on the $VIX?! Pretty dull market, when I have to examine the $VIX, using a 5 min chart.
Note: The purpose of tracking the $VIX is to measure fear in the market. I don't recommend trading the $VIX, but I know traders are going to trade it nevertheless.     

Can the $VIX break out, yes (if the tiny triangle is only wave A) and there's nothing the, "Powers that Be", would like more, than to shake out the weak hands, and set the bear trap in oil, energy, biotech, before putting money to work, because that doubles the number of buyers (when you factor in short covering), so I suspect we're going to see another shake out before we're off to the races again. The more retail bears, the more short covering into the summer. 

So we've looked at market sentiment (the $VIX), cyclicality, and the probably of outcomes - based on past experience - now let's look at the charts. 

Very short term 

Consolidation remains sideways, to down in the very near term (looking at 1 - 5 min, and even 30 min charts), and that points to a sub-minuette "wave 4" (bullish). You might have seen me Tweet this EW count on several short term charts last week. I'm talking about sub-minueete wave 4, and the reason it's called sub-minueete, is that it's not even visible on longer term charts. That means we should see one more move higher in wave 5. Note: Wave 5 may not even make a new recent high. It could truncated, falling falling short of the wave 3 level - where the market gapped up 2 days in a row last week. Momentum is weak, compared to all previous rallys, over the past several months, and that's because the smart money is moving to the sidelines. That points to a major top coming. In short: I'm only looking for a tiny rally higher, before we see a reversal, and a possible sector rotation. I know that's a bold call. and a confusing one (for some), but we saw financials and tech lead this rally, and they should be the first to roll over. At the same time, energy is trading at the bottom of the range (completing a wave 5 of C).  

First here's the tiny wave 4 I'm talking about, as seen on the 5 min Dow chart below. You see the dow breaking out above my pink support line this morning, and a slightly higher high in wave 5 looks likely. Target looks like 21130 - 50, but I'm not sure wave iv is finished. We'll know shortly  

SPX - also seen breaking out (above my orange line) this morning, in what looks like a tiny wave "c" (of B). 2392.50 looks like a good target, where we could see a sharp reversal into a powerful wave C. That would be enough to set the bear trap. Note the rally to 2392.68 last week (Sold). 

Alternate EW count: Whipsawing in a range. 

I'm not crazy about the candlestick analysis, and the broadening range seen below is still in play. Another reason why I'm bearish in the intermediate term.  Until the market actually breaks out to new highs, extra caution is warranted. This either looks like a head-fake wave "D", or c (of head-fake wave B, as I've already pointed out.  

So I'd be looking to sell into strength, and not to get caught in a bear trap heading into the Summer. I'n the mean time; I'll be watching this market like a hawk, as always. 

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