Technicals | Feb 07 2018
Bottom Line 06/02/18
Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Up
Support Levels: 2554 / 2322 / 2233
Resistance Levels: 2873 (all time highs)
Technical Discussion
The bullish freight train has temporarily derailed itself yet basis the longer term interpretation of the larger trend that we have been monitoring, we believe this will prove to be a healthy retracement only in U.S Indices and U.S equities in general. The S&P 500 has fallen 8% in a very short period of time which is its biggest decline since August 2015. And when the U.S sneezes, everyone else globally also catches a cold. Our markets here in Oz have at one stage today been over 200 points down, and Asian markets in general are typically selling off strongly today as well. We could easily see a sell off here of 15 – 20% before normality returns, yet this will still not sway us away from our longer term bullish outlook for the region. So long as our critical technical numbers continue to hold strong.
Reasons to stay longer term bullish (medium term breather now in play):
→ S&P 500 earnings remain well supported overall
→ Elliott Wave count continues to have motive bigger picture
→ retracements have been healthy and well supported to this point
→ price has been pushing into new all-time highs
→ corrective trigger looks to have formally commenced on 2nd February
'Being larger cycle though, once the Wave-(3) does lock into place, the larger Wave-(4) ….. will appear to be substantial and bearish for punters who have gotten use to this market endlessly pushing on higher …. we believe that a decent breather is getting very close now, and as such we continue to exercise an element of caution.' This from our last review with the unexpected pop up higher out of the ending diagonal back in December making us even more cautious with the Wave-5 of (3) wave count looking highly stretched. Yet the words 'highly stretched' mean for nothing until price can categorically prove this to be the case, which it has now done. Price action over the last two sessions have been strong and volatile to the downside, with the range within these daily price bars significant. And we can't remember the last time the CBOE Volatility Index (VIX) locked in a 100% + gain in a single session. Fear has clearly returned !
So where to from here ? Well basis our longer term Wave count continuing to prove off the 2009 lows, what we are likely witnessing now is a higher degree Wave-(4) move which, as we have been stating for some time, is likely going to be multi month in the making. Wave-(4)'s often unfold as coiling type patterns which brings a larger triangle into play. And usually the first push lower within these patterns is the strongest and deepest before a prolonged consolidation phase takes shape. We use the word prolonged as the Wave count is higher degree, so basis this, a quick sharp corrective move followed by an almost immediate bullish reversal, in our view is going to be highly unlikely. The 23.6% retracement of the full Wave-(3) move comes in at 2445, and the typical Wave-(4) 38.2% retracement measures in at 2185. We see no reason why this price zone cannot be achieved over the coming months.
Trading Strategy
'We maintain that the best trading opportunity from here is going to be on the long side, yet post the long awaited dip. ' Now that the pullback has triggered, our strategy remains the same. As such we are going to just stay in cash and wait it out until volatility subsides. Naturally enough there are many traders out there that like to get involved in this type of volatility and trade on the short side. Yet even though some short set ups may present over the coming months, just jumping on board haphazardly is very much fraught with danger. The Bull's wont take this lying down so violent price reversals intraday could well be witnessed whilst price works through this higher degree corrective process. Remaining in cash is also a valid trading strategy !
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