Well, one thing you can say bout trends…they are a gift if we listen to them and they remain true to nature.
In the past week the markets have done just so and offered up some pretty easy money for those that read the situation for what it was.
Just as we talked about last week – and many times prior in months recent – the broad equity indices have traded for the most part in range-bound fashion between the upper and lower-ends of well established consolidation zones.
The latter half of last week saw the INDU and SPX seemingly poised for significant breaks to what would have likely been runs at the Sept – Oct triple-top highs. But there was that one little factor standing in the way…those pesky resistance levels at the top of the aforementioned resistance zones…
Now we can attribute it to all of the fiscal cliff shenanigans and light volume and Mayan calendar predictions…yadayadayada… BS…life happens…daily! What’s going on now is catching no one by surprise…the swings and head fakes and various machinations are part of the game…end of story.
Fact is the markets march on and do what they will, oft times regardless of what’s going on. More so the case when the so-called news or events have been anticipated and discounted/reflected in price…certainly the case in this instance.
K, so cutting through the talking-head bull and excuses and everything else and getting to the just of the matter…the broad indices turned tail at resistance. They’ve since traded off a decent clip. Nothing complicated or overly surprising with any of that.
Which leaves us where?
Shouldn’t be surprised to know that at the height of the sell-off today, we traded down and through the lower-end of the consolidation zones for both indices before reversing sharply. The INDU briefly sliced through its 200-dma, which was parked at the bottom of the consolidation zone at roughly the 13k mark. The SPX managed a bounce off its consolidation-zone support at roughly 1,400 – actually managing to remain north of its 200-dma which is parked back at 1,390.
So now we find ourselves at the opposite end of the spectrum from a week ago, with the bears a bit more emboldened than the bulls. That said, we are sitting at the perfect level for a reversal entry on the long side. Aggressive? Maybe! But to ignore the likely possibility of more range-bound activity is to ignore the trend…always a tough way to make a living in this biz….
If the markets head north from here, and today’s sell-off reversal might just be a “tell,” then the obvious targets for trades on the long-side are at the top of the consolidation zones.
Alternatively, if we fail to hold the consolidation support levels breached today before the reversal, then the November lows are gonna act as magnets and you can bet we’ll see them tested.
Which brings me back to what I said at this point last week: “For now it’s pretty straightforward – traders patient enough to listen to the market are looking at a short window with some well-defined targets to shoot for… May not seem like clarity to the average person, but to a price-action purist this is the type of opportunity you’re always seeking.” I’ll stand by that statement any day of the week…and certainly in the coming week(s), as I sense some serious opportunities for profit.
We shall see…
~LH.