Seems like we keep seeing the same pattern. I call a market top, and then the market sells off further than expected, but calling accurate targets in a sideways pattern is always difficult. I've been calling this a wave 4 pullback for some time, and wave 4 is almost always an extended sideways triangle, or a complicated combination pattern. See what looks like wave A of 4 on the Dow chart below.
I'm not going to say, "I got yesterday wrong". Far from it! I made it very clear that the rally which started August 11th was a sell on Wednesday, and called that top precisely. I also confirmed the reversal at yesterday's open, when support broke, and continued to break, as the $VIX continued to break out, and I called this in real time, which is no easy feat. I'm not documenting all this, just to blow my own horn, but to point out that when you see a reversal, and sell it you need to try to stick with the trade that's working, and I thought that was going to be a pullback, followed by a second snap-back rally, and I'll explain why that is when we get to the charts.
At yesterday's open; It also looked like the $SPX might just trade into a little bearish triangle, and snap back again, but when that pattern broke all bets were off, and I didn't take profits on my shorts until the bottom had dropped out. When a triangle pattern breaks down, you sell it, because it's more likely not a triangle at all, but a continuation pattern. It's talking me years to recognize this, and execute it successfully! I'm talking about trading it, not predicting the market correctly, but trading what ever comes next, and that comes down to recognizing false patterns, knowing where support is and selling when support breaks. Charting is only half the battle. Trading is different skill set entirely. Some people refer to this as "being nimble", but it's more than that. If you can recognize where support is breaking down, and pull the trigger simultaneously, you will win every time.
For example: Key support levels on the Russell 2000 continued to break down last week, and you can see exactly where support was taken out. Unfortunately I has no idea the $RUT was selling off, because I wasn't running my tickers, or even watching the 60 min view on the $RUT. If one of my twitter followers had given me a heads up, that the $RUT was selling off, we might have done pretty well shorting it, but hindsight is 20/20. Still, there's a lot to be learned by studying the chart below.
Think it was Wed, I tried calling the bottom on the $RUT, and thought I had confirmed the reversal yesterday morning, but then it sold off to a new recent low, and you can see where it broke my blue line. I can't say I would've sold it there; in fact I didn't sell. Beware the short squeeze; especially in a beaten down market.
I can't say the $RUT is that beaten down when you compare it to energy markets, but the $RUT has fallen pretty swiftly in a short amount of time.
Getting back to why I was only looking for a pullback.
The most recent rally on the $SPX looked like an impulse wave on the 1 min chart, and that is "always followed by a second impulse (usually in wave c), according to the Elliott Wave literature.
$SPX - looks like a 5 wave move to the upside, right? This has me still scratching my head, this morning, and I can't explain it, other than I was relying to heavily on a 1 min chart. This happens to the best of us; we become short sighted; and don't realize it until the short term chart falls apart. I think we're going to start relying less on very short term charts in the future, and especially when we get closer to a major reversal.
But when we look at the 30 min Dow chart we don't see a 5 wave impulse!
The most recent rally is only a 3 wave move (labelled wave "b"), followed by a powerful wave c (of A). As you can see it's going to be quite a while before we can confirm a wave 4 sideways triangle.
Yesterday's sell-off (execute by the powers that be and promoted by the Government Media Complex) looks out of place on the $SPX chart, but looks perfect on the DOW chart.
In the previous update I stated that pros were behind this selling, and theorized that we might see stocks held down - going into OPEX - just as we saw tech held down last month, and here we are.
If support continues to break we'll sell it, but I see it trying to build a base, and the market trading in a sideways range, while the GOP continues to drag their feet...
As far as I'm concerned this sell-off is a big Psyop, designed to rattle the Trump administration, and possibly even cover their tracks on last weeks well organized Charlottesville event.
On a lighter not: I'll be away from the office on Monday, chasing the total eclipse in southern Illinois, and I could use a little getaway... I'll be streaming it in my twitter feed, around 1 PM, at it's peak. Follow my twitter @3XTraders, and have a great weekend, while summer lasts.
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