Technicals | Oct 31 2013
Bottom Line 30/10/13
Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Technical Discussion
After a period of pretty much sideways price action for the past 5 months, U.S Indices may have once more found their Mojo. Our longer term view has maintained that are break higher was going to be the way to go, with the trend overall still having quite a bit of legs left in it just yet in our opinion. And we will discuss the reasons why we continue to think this in our more educative section below. On Tuesday night the S&P 500 started strongly, headed sideways mid session, then closed strong into the close. So a 10 points or 0.56% increase, as price continues to roll with the underlying uptrend. Blue sky territory once more, and even though price remains well overbought, its seems more than comfortable with the situation. At least to this point in time.
If we have our Elliott Wave labelling correct here in relation to where this trend is placed, then there is plenty more upside left in this yet. Off our longer term charts, the March 2009 lows we have labelled as a larger degree cycle Wave-[IV] completion point that was pretty much 10 years in the making. I think people tend to forget that the S&P 500 basically traded in a wide ranging sideways band from the tech bubble burst back in 2000, right up until March 2009. A higher degree flatter [A]-[B]-[C] type pattern that evolved in the following manner. An impulsive Wave-[A] lower as part of the tech crash. A laboured Wave-[B] higher that evolved as part of the markets slow recovery from that event, and then another impulsive wave lower within the final Wave-[C] which shocked everyone across the globe as part of the GFC. The latter in our view cleaning global markets out to the extent that it was the final straw for many investors. Many who even to this day, have refused to return. Yet greed is a powerful emotion. And if these market continue to stretch on north over time, as we are expecting them to do, then market participation, even by those scared off Mum & Dad investors of the past, is likely to return. There is a great saying that goes, 'When everyone is afraid, be brave, and when everyone is brave, be afraid.' Worth some introspective thought that one ! Back to the dailies and the labelling of our chart proposes that a Wave-5 of (3) of [3] is now in progress. Getting our head around the Wave-4 placements of the higher and lower degree now looks resolved. Which means overall we could be in for another purple patch of positive price moves here. Watch for a 5-wave subdivision within this immediate Wave-5 though. If it occurs, another dip is still going to be expected shorter term as part of a wave-(ii), yet post that, any higher swing low pattern that triggers, really does keep the Bull's well and truly in control here.
Trading Strategy
From a trading perspective, the consolidation process that has taken place above the old resistance line associated with the S&P 500's all time high zone, has been very positive. And as we have kept reinforcing over the past few months or so, the probabilities were leaning towards a breakout higher rather than lower. And that now appears to be underway. We've made a decision to trade this off the first reaction lower off this move. Which basically means we are expecting a 5-wave subdivision to occur. Simply put if price just continues to head north unabated, then we are going to be left stranded at the station. Yet if we do get the aforementioned subdivisions unfolding, then we will be looking for an aggressive yet low risk swing trade opportunity on the long side over the coming weeks. We've rolled the dice so lets see what unfolds.
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Risk Disclosure Statement
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