In my last update I showed that the S&P was following a standard impulse pattern, but the very next day it already decided to extend by adding another wave up. That’s how the markets work since we’re dealing with a non-linear environment where forecasts can only be based on standard expectations: anticipate, monitor, adjust. Thus, after that extension and Friday’s viscous 50p drop in 20min, and now the Futures markets being up 15+ already on the S&P we need to ask ourselves: What’s next?! The easiest answer is likely to be found in the NAS, which suggests that on Friday it completed (green) minor-4 of (red) intermediate-iii of yellow major-3. The next ideal target for minor-5 is the 2.000x extension at around $6965.
How does this than translate to the S&P? As I wrote to my premium members in my latest weekly digest: “Thus, the question is if we can see one more push higher or if this was it. The push higher would have to be a c-wave of an ending diagonal triangle (EDT), as the 52p drop from SPX2658 to SPX2606 doesn’t fit with any of the other retraces (11-15p) since the SPX2557 low was struck [See S&P 1-min chart below], and since I can’t count 5 waves up off the SPX2557 low. If your long-stops stops were hit [on Friday, as they were recommended at SPX2641 and 2610] and/or if you sold into the earlier strength [this week] you did well because please remember that you don’t have to be in the market all the time, and since the market is a) now at such an important cross road; b) at key long-term resistance; c) very overextended, etc being defensive (sell into strength, hedge, etc) is for non-aggressive traders IMHO the way to go.”
In addition, I added “[the EDT] count would … allow the S&P to tag the ideal (orange) 300% and (blue) 200% extensions of micro-3 and nano-v at SPX2675-2670; respectively. Again, this is not a very high probability count, and please don’t feel frustrated if you got stopped out and saw the market then add another 30p again. STOPS are there to protect profits. That’s all that matters. And only very aggressive traders should now bet on more upside.“
Well, and as I said in last Thursday’s daily update to my premium members “… in this market simple go with the most Bullish option you can find and that’s the right one.” Again, that appears to be the right choice. Thus, besides forecasting the markets I also provide actionable price targets, and trading advice by suggesting tight stops as successful trading is based on protecting profits and minimizing losses. Nothing else. There’s simple no other or better way. We don’t do the “coulda, woulda, shoulda” as hindsight is 20/20. We need to realize that topping is a process. And, often frustrating at that as we’ll get a lot of volatility (fast up and down moves) as the market creates its topping structure: final 4th and 5th waves. And that’s exactly what we have now.
Lastly, trading and investing is not about nailing tops and bottoms. That’s NOT where the money is made. The money is made by being on the right side of the trade, ride that trend as long as possible (if you’re catching 60+% of a move you’re doing very well) and then take your chips off the table. Because it ain’t no profit until you actually sell your profitable position… You can then let the final up or down moves go by and wait for the next low risk / high reward set up because as said before: you don’t have to be in the market all the time. That’s how profitable trading is done.
For those of you who’ve been around for longer than a few years, I must admit that the past few days/weeks have felt like fall of 2014, where we got the the grind higher into mid-September 2014 and then a quick 4 week drop into mid-October which was bought up even faster into new ATHS into December, only to see the markets add 2.5% over the next 8 months and loss 15% thereafter into 2016. Only now things are progressing faster as they are likely on a much smaller scale/wave degree: the grind higher was earlier this week; the quick drop was on Friday, and the final move up is now underway. Forewarned is forearmed.
Why? Because markets don’t grow to the sky forever. They never have and never will. Although it may feel that a larger correction will never ever happen again, it’s a known fact that it will. Just as the 50p drop happened on Friday! After 3rd waves, 4th and 5th waves must follow, which must then be followed by corrections. That’s a universal fact, and while this 3rd wave is finishing in an euphoric state, we know for a fact that a 4th wave will follow.