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 July 31,
2005 Commentary (weekend edition)-
Well, I sound
like a broken record, but this is the best trading I have seen for a long, long
time, and it is not fading out. This is the best 'summer doldrums' I have ever
seen. Those that left are missing out on some great action. I was going to do
today's commentary on some of the incredible Russell e-mini work that came from
this last week, but instead I decided I would show something I posted in the
members' section on
Monday on the SOX. It is as relevant now as it was when I posted it
then.
"Today I'm going to play the 'scenario game' with the SOX. Whenever
I do scenarios I seem to get positive feedback, so I guess that is something
that a lot of people in here appreciate. The SOX is at what might be a critical
juncture. It is also set up for a multiplicity of potential scenarios. Rarely
do I see something follow a course of action that puts it in position to follow
so many potential scenarios. Basically it is avoiding making a decision by
continuingly narrowing its path down by always making a choice, when a choice
has to be made, of the option that lets it decide later what path it's
on.
This may sound a little crazy, or fanciful, but if you really study
price action and 'pseudo-Elliot' scenarios as I like to call them, you will see
there is a path that can be followed for a while where at each step it makes a
choice such that you still can't see what scenario it is following. In order to
do this it must coil tighter and tighter, as any move that 'expands' the price
action would tip its hand. I know this sounds abstract, but it really isn't
once you see it. Try and think about this as you look some charts over and
maybe you'll begin to see what I am talking about. It's hard to explain with
words, but it is something I can show fairly easily in person.
I'll start
with a daily chart of the SOX. This should be fun.
The SOX is now at an ABCD, with an ABCD in
the BC leg. Yes, this is not a 'standard' BC leg ABCD in structure, but a lot
of my work has shown me that I can look for the 'spirit' of an ABCD,
essentially a corrective structure, in areas I expect such structures, and use
that information, even if I'm not trading on that spot specifically. So, here I
have a potential correction finishing up in this area. Keep in mind I am only
showing structure, and without full groupings, lines, etc., I have no idea
specifically where I want to watch.
Next, let's drop back and get some more data
on the chart.
Now I can see what got the SOX to this point.
Remember that fantastic ABCD pattern that set this whole run up? Right off the
1.000 ABCD, and up like a rocket. See, now the SOX has done an ABCD with a very
shallow BC leg, and the ABCD is bigger than the previous one. It is also right
at a 1.272 external retracement of that previous ABCD (hmmm). An ABCD shouldn't
'correct' another ABCD, and surely not with a bigger move. I need to do more
assessment.
Let's go to the weekly and see if that tells me anything.
There's that nice ABCD, which was also a
5-point pattern. Now the layout is clear, with respect to this data. But
something should jump right out at you here. Look at that structure and see if
you can spot it. I'll go ahead and highlight it for you.
The SOX is right at a larger ABCD pattern,
with that nice ABCD we just looked at in the BC leg. Look at how clean this
structure is, and how corrective it looks. One issue is that I have no way to
know if this is a 'wave 3' or a 'wave c' at this point, in Elliot terms.
That's how 'context'
usually helps me. Another issue is the ABCD look to the CD leg. I don't like
that, although it does happen from time to time. Perhaps this is a 'wave 3'
within the CD leg, and it has a little bit of work yet to do?
I'll back off
some more and see if additional data helps me out at all.
Oh, boy. Now I see another possible scenario.
Maybe this is a 'wave 3', on the way up to a much larger ABCD. If that was the
case, the BC leg would not have a very corrective look to it, but that happens.
It could be, too, that this is a big 'wave 3' and that it will go even higher
than that 1.000 price projection area.
It should be clear now just how many choices
this thing seems to have. All these scenarios are still possible within this
layout. As soon as anything of significance happens off this current area some
possibilities will be eliminated. For now, I can set up some various groupings
and lines, see what that tells me, and see what kind of price action responses
I get at various places. And how about a higher timeframe look? Monthly? You
bet. With logscale, too. I think this is a very key time here, and I think some
fantastic potential trade opportunities are lining up for me in here, and in
the near future. Watch this one closely, as it is a big driver of the tech
sector."
Now, if you want to have some fun, add a modified Schiff median
line set onto the ABCD that starts at the September '04 low, and see what that
shows you. The SOX is very much still in play, and some big-time decisions are
going to be made very soon. I find that to be the case across the board in the
market, from the treasuries (watch those ABCD's that look like they are on
the verge of giving way), to the currencies (look at the reaction off the 4-Point Continuation Pattern on
the dollar index, and how it formed an ABCD that it reacted off of), to the
XAU, which came right off the area of last week's chart of the week and went
right to the next expected area, to crude, which came off a key area and looks
like it is ready to blast off (with energy stocks bullish percent index at over
92%?), to grains still trading like 90's tech stocks. This market has more than
enough action for any style or taste, in my opinion.
The next
commentary will be next weekend's edition, posted by Sunday evening, August 7,
2005.
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