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Summary for Week Ending 22nd May 2004
This week we saw market defy convention and hold up well. Last week I was discussing current swing pattern gap that existed between the previous swing high and low. This gapping in market is an extension marker be it either to bull or bear side of market. In this case it was to the downside, and there was a setup for a strong drive south. What we needed was 12 May low to be taken out quickly after hinting at it previous Friday, but the best we got was a drive down on Monday, which appears to have been retest I was talking about last week. When the market is in this shape (or pattern) the expected outcome is strong drive. If we don't get it, then the retest then becomes a marker for a change in trend, depending of course on strength of bounce that we witness.
On Tuesday we saw an inside day, this being day we were looking for new lows. Following that on Wednesday we saw a strong drive upwards that failed to consolidate and both Thursday and Friday proved to be purely nothing days with market vacillating unsure what to do. Of interest is fact that Wednesday high is still ( only just) below previous swing low of 1107, the market for the previous weeks attention. This is where things get tricky. Judging by the volume, I'm not the only one that thinks so, as players appear to have taken to sidelines, some of which must be sweating profusely, trying to sit out this bearishness. We have yet to see any capitulation type movement, so we know that there is a considerable amount of energy still built in, and its simply looking for a direction to spend it.
Looking ahead, we can see on this weeks chart that we now have two consecutive higher swing lows in place since the 12 May outside reversal low. This is in itself significant as it shows that there is enough bullish intent to keep market above water. The concern for me is the fact that the market has yet to cover April 30 low, which as I mentioned last week would tighten swing pattern away from Acceleration/Extension pattern that we can now see. From an Elliot perspective we have a clear cut 3 wave ZigZag correction pattern, with approximate wave equality in place as well. What we do not have yet is the corresponding 'launch' forwards that we would normally expect to see. With the market in this character, it is difficult to know which way to go. There are technical reasons for both directions, but the markers so far indicate that the decline is over... at least for now. The worst case scenario here is that current swings off 12 May low are simply counter trend and market is simply catching its breath. Being long at this point does however offer opportunity of keeping stops tight.
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