Summary for Week Ending 29th October 2005
The market had a chance to bury itself this week when the swing high achieved on Wednesday failed to take out the 22 Sept swing low, giving us an 'air gap' pattern, which under normal terms is an indicator of accelerating movement, especially when we see in bearish formations. As we saw later in the week this opportunity for a high speed decent evaporated when the market made another of its meat grinder reversals on Friday which brought in yet another wide range day in the opposite direction. For the past two weeks now the market has been experiencing some very impressive (and scary) wide range gyrations whilst not going anywhere. This kind of market is impossible to trade in or out of since there is no distinct trend in place and standard swing patterns and signals are getting thumped with the same rapidity that the market is pulling up stumps and reversing, almost on a whim.
Two weeks ago (Oct 15th) I forecast that the market would soak up time and my forecast was or about 12-13 days of the market going sideways. Well it has gone sideways for 11 trading days now and Monday and Tuesday will be the days that will test the mettle of this market. My expectation is for a rally up to the Red Zone on the chart and then sink like a stone to bring in the final exhaustion low before Xmas. If the market manages to exceed the High on Wednesday then that will market the 3rd push upwards, which in the compression pattern should be the final one.
The setup I'll be looking for is travel into the red zone and then a down day on Either Tuesday or Wednesday. This will provide an opportunity for a short position whilst still providing the opportunity for placing a very tight stop just above the new high ( should we get on on Monday or Tuesday) So where's the soft point in this scenario ? Since the market has been playing up like a 20 cent watch, there is no guarantee that the market will not continue playing games. having said this its also important to trade with what you know and so far the market has unfolded as forecast, so its just a matter of sit, wait and see...
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