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Can we learn from the past? Can we at least adjust our attitude by examining the past? I think so. The first chart below is a composite chart that compares the market of 2007/2008 with the market of today. I find this study very interesting, even if it’s not entirely accurate. It helps me get the emotion out of my trading and analysis.

The first chart is the Weekly chart from late 2007 and imbedded in it is today’s Weekly chart. I tried to stop the data at a point where the markets are similar. These are shown in this way to demonstrate the similarities between the market today and the one in late 2007, early 2008.

The next chart below takes the main chart above from 3 1/2 years ago and reveals the Weekly candles in the 11 weeks that follow. It would be nice if today’s market would accurately reproduce that historic market action, but that is not the claim that is being made in this study. However, because the markets showed a similarity in their structure, it isn’t unreasonable to believe that because human nature hasn’t changed, we might see similar action as we move forward from today. What I hope we take away from this study is that we can get torn up trading if we let our emotions control our decisions and not pure technical analysis applied in an unbiased way. Especially look at the first three weekly candles and imagine what trading those weeks must have been like. I also find especially interesting that in the charts above, the PTI was low in both instances, and yet a successful, though barely, W5 developed in 2008 and took out W3 by a little. I use that fact in my analysis in the last chart to select my preferred target.

This is our useful 360 Minute chart. I have my favorite target and alternatives clearly marked. Because the market is extremely oversold, it will be tricky to find a good entry level for our next trade. The red oval on the chart is only to indicate that there is a wide range of entry levels possible. I’ll be looking at MA’s at different time levels to find a turning point.

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I’m looking forward to getting past this correction. Let’s begin this weekend analysis with a review of Friday’s action. You will remember that I said my favorite Fibonacci setups are the 78.6% retracement and the 161.8% external retracement. I commented that they were almost always good for at least a scalp. Friday was a day when they were good for more than a scalp. The early morning spike and sharp retracement is a good example of the kind of market you don’t want to step in front of however. Note that the other trade setups were preceded by orderly moves with good structures (3 trend moves with 2 counter-trend moves). That’s what I want to see when I place a limit order at my target level. When I trade this setup, I’ll take 1/2 off the table after I have about 3 points and place a break-even on the rest. I’ll take the rest off if ES reaches the 78.6% retracement going the other way. Don’t expect to see this action on a strong trend day, but how often are we in a strong trend day verses a consolidation day.

Next we’ll look at the Daily chart for my best guess as to what we might see on Monday. The 50 MA is my key to the upside prediction for this correction. This chart is of the continuous data versus the current contract only. Unfortunately, the numbers don’t coincide perfectly, so be sure to look at the December contract for the 50 MA level (1220.31). I don’t expect a run for the neckline yet, but that’s always a possibility (dashed arrows). I also mention the possibility of a triangle forming, but that would be my third best scenario.

I use the 240 minute chart to show a possible target area (red circle). The blue line is the 127.2% external retracement of the preceding correction. It’s not the strongest of the external retracements, but it does coincide nicely with the approximate level of the 50 MA on the Daily chart. A little overthrow to the black line would give us a double top, and it’s so close I can’t rule it out. If we start getting much above that area, ES will have gone past my top scenarios and I’ll have to reconsider my opinion. ES is going to have to call this one. Our job is to be listening and watching.

The markets once again threw in a couple of curve balls to the unwary trader, without a plan this market will simply chop up and cause great pain to a lot of traders, I suspect there was a lot of pain seen this week due to the craziness that seems to be getting more intense week by week, knowing when to get in and stay out is paramount to this sort of market.

As traders you should be embracing this sort of volatility, it’s not every day you see these sorts of moves where you see 30 handles on the ES in a daily range.

But again we continue to map out and get in and out at our areas, it’s kind of scary how the market seems to obey our ideas, but as long as our ideas keep working we will keep trading them.

The market could be now be setting up a potential water fall decline much like you saw a few weeks back, the recent moves have been corrective against the main trend which is down and providing great trade ideas for the active and aggressive swing or day trader, in a number of markets.

This is not an exaggeration from my part; it’s about reading price action and what price suggests, if I am wrong, you have lost nothing by staying out of the markets, if I am right, then you may just regret those early bird stocks you just bought thinking they were a bargain. Cheap can get a whole lot cheaper, just look to 2008 to see how “cheap” cheap was.

Until this market shows me some evidence that the bull is back in town I continue to stay nice and cozy in my bear suit as we have been bears since the breakdown of 1280SPX a few weeks back.

Readers of my articles will note that I was bullish for the majority of last year and this year right up until the point of the breakdown point. So it’s not like I am perma bear saying the same old stuff, I can read a chart and atm I don’t see any evidence for a bullish market.

Whilst the bulls will argue that you need to buy when there is blood on the streets, I will say that being a contrarian at the wrong time without any supportive evidence is akin to been a perma bull and not respecting price action.

This is no buy and hold market for an investor imo, my advice for investors is to stay out of the markets, as the market at this stage could have a nasty move lower setting up, and you may just regret those early bird stocks you buy.

So far the market is working our script and we continue to nail moves week after week, and as long as the market respects out ideas, I suspect that a substantial decline is potentially starting or a week or 2 away.

SPX

I am sure most traders with the basics of technical analysis understand the H&S pattern.

There is an obvious one now showing on the SPX, in fact it’s showing up and many markets, most of the US equity markets have this pattern as do some of the risk FX currencies.

Now the contrarian in me suggests that the market is about to setup trap and burn the shorts again for the 3rd time in as many weeks, however being a contrarian is one thing, respecting price is another.

Until I see price confirm the “bear trap” then the H&S is a very valid pattern and at this stage with what I am seeing and the weakness across the board of other markets needs respecting, as the potential is very real for more sustained downside.

The market has chopped around for a number of weeks, but it is an obvious bear channel/flag and the odds say once finished more downside is looming.

It may be finished and the next leg lower is starting next week, but we have an idea that we will respect as long as the market stays above 1141SPX, under 1141SPX kills the idea.

The obvious H&S is there and potentially a day or 2 away from being confirmed, however there is an idea that we are following should the market setup a trap for the bears.

Make no mistake we are traders at Wavepatterntraders.com we know when to kill an idea and reverse our bias, short term or long term the market appears to be in a bear trend, but we find trades to adjust to both sides of the market.

Buying is just as easy as selling, if the market wants to set up a bear “trap” early next week, that’s fine by us, the majority of us are flat into the close, not taking any risk due to the Greece situation.

Remember the $$$ is not yours till its banked, you can always put the trade back on, you can’t get back lost profits, the safe trade was to reduce risk into the close on Friday and wait till Sundays globex open to evaluate and watch some ideas we are working.

We were watching a series of trend lines that the market has into the 1146-48SPX area. I made it known well in advance that we should respect this area as solid support, having been short for the best part of 35 handles, we did not want to make any mistakes going into the weekend. So knowing those trend lines in advance as well as a key area of support at 1147ES (Sept) was key to us. It seemed like a good area to close out a good percentage of gains and reduce risk, as you just don’t know what crazy stuff could happen over the weekend, the ES might gap down 30 handles if Greece defaults, or gap up 30 handles if a fix is in, the odds are not worth the risk and banking the $$$ seemed like the best choice.

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“Da trap”

ES

Posted 07 September 2011

“With 5 waves seen in other risk markets, it appears that we are at least correcting so looking for the 1180-1195SPX area to stop any upside, only a move above 1200SPX would we need to be cautious if it gets aggressive.”

Going into Thursday I had a target of 1180-95SPX, the market pushed a bit higher than I anticipated but the key was what happened in globex after the market made that high, as we wanted to see a small 5 down, which we got and the bounce got us short in globex.

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Before

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After

Aggressive traders that were looking for the move, made off with anywhere from 30-40 handles.

1 handle is $50, that’s also happens to be the monthly membership. So members just made 2-3 years membership in one day and that’s using a 1 lot.

The ES is just a tiny part of the markets we cover; FX markets last were putting in 100+ pip moves.

I find it somewhat amusing that the move on Friday took many by surprise; I guess they were not looking at our ideas. We were actively looking for a high in FX pairs AUD/USD, AUD/JPY and NZD/USD so it came of no surprise to us, and we rang the register as the ideas worked out well. The ES follows FX markets or vice versa, as there is a selection of FX currencies as well as the ES that we call “risk” markets.

Knowing and following other markets is a huge edge in today’s markets, in fact if you are not following other risk markets, you simply don’t have much of an edge.

The risk was to the 98ES high, I made it known to members that I wanted a reaction at the 90-92ES area, fibbo came to the rescue and delivered. If he was still around today I am sure he would have been proud of that move.

You still think markets are random huh!!! Think again, traders control the waves by emotions; Elliott does a great job of creating those waves based on emotions.

The skill of the trader using Elliott Wave is where it matters, knowing when to enter with small risk for high reward, and of course staying objective and respecting the market price action is telling you, no perma bias, just objective analysis.

I have said it before, but the skill of using Elliott Wave comes from the user, if you follow an experienced Elliottician, it is a powerful tool if it’s used to its strengths, it has some flaws, but is worthy of the effort that we put into using our maps.

This is just one market, we did that for another 5 markets if I recall, in the FX markets this week alone, so members had a great selection to nail some low risk trades.

Take a look at out before and after section if you need convincing. http://www.wavepatterntraders.com/index.php?/forum/179-before-after/

Conclusion

So Sunday’s globex action will be important for some ideas we are working, but we won’t know until then as a news bomb from Greece could change the demographics somewhat around the world, kind of reminds me of the Lehman weekend for those around in 2008.

Traders need to be very careful from this area, the market could be setting up a substantial decline, but equally there is a potential trap, staying under the 68ES-75ES area in globex, should confirm the bears still in full control. An aggressive move above 1175ES Sept and the bears need to respect that move, especially if it’s being seen in other risk markets, such as the FX risk pairs.

Should be another great week next week, and we are looking forward to again making $$$ and successful trades.

Come join us, you are witnessing some of the craziest markets in a while, and if you’re struggling for ideas and need some guidance, then you have come to the right place at Wavepatterntraders.com

Until next time.

Have a profitable week ahead.

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It’s always a fair question to see how an analyst did calling a major top. When I posted on 17 July 2011, many analysts were calling for the 2 May high to be exceeded. They were looking at the consolidation as a continuation pattern and not a major topping pattern. Based on the Elliott count of the Weekly and Daily chart and a supporting H&S pattern forming, I changed my little End-Is-Near zealot’s sign that I had been posting for weeks from “IS near” to “WAS near”. Those who have been following my posts and understand Elliott Wave Theory know that this is a significant top that will lead to a correction to a minimum of 1102.75 and most likely 950′ish. There is even the possibility of a retrace of the entire impulsive move from the 6 March 2009 low. And some say we will go much lower. I’m sticking to the more Bullish correction to 950′ish, but I know how ES loves extremes. Look what it did with the correction out of the H&S. Many analysts say the correction is over and that we are going to new highs. You can see from the second chart that I don’t agree. If you are a long-term position trader, you can take this as a informed tip. A colleague asked me my advise on the market and on 17 July I told him I would take my pension and IRA’s out of equities for a while. He’s very happy right now! Knowing that we are going to make a major correction is useful, but if you are a day-trader, you need to know how we are going to get there on a day-by-day basis, and that is what we do at this site.

This is a copy of the 17July2011 post where “Fickle Me“ changed my mind based on the unfolding of new data. Day-traders have the luxury of changing their mind on a dime. Stubbornness because of pride can cost you money! You can click on it to enlarge it.

Let’s take a look at the Weekly chart I posted on 17 July 2011. I’m sure I wasn’t the only analyst who saw the repeating patterns on this chart.

We have to at least take a look at the Weekly chart as of this posting.

When did I first see a H&S forming? Take a look at my posting on 25June2011. This chart became my intermediate overarching view as I analyzed the market for day-traders. Because we were going to be going higher from the 25th, I didn’t call a top prematurely because I had the luxury of waiting for the market to unfold and give me the right moment to call it.

I talk often about my overarching view of the market and how that helps me with short-term trading. Here are a series of prior posts that were successful because of my clear understanding of the Big Picture. These are based on my calling of a market top on 15 July. I was using a series of 360 minute interval on charts in my analysis because it gave me a chart that was useful. The first chart I’ll show is the post of 21July2011. Without a clear understanding of the Big Picture, I wouldn’t be able to draw a big red arrow on this chart. It could as easily be a rally beginning from a bottom – based on this chart alone. The areas on the chart that imply a wrecked count are very meaningful because I’m referring to a wrecked count of my overarching view!

I’ll give you the first three consecutive posts of the week following the above post. The chart below is from 25July2011. You can see I am relieved that my count didn’t get wrecked. When a major count gets wrecked, it’s back to the drawing board. Fortunately, I can’t remembering that happening for years.

Then we go to the 26th of July. The Bulls and the Bears had been dancing around, but the Wave 2 high seemed to be out of jeopardy for the time being. I was still projecting a big Wave 3 with the red arrow.

The last chart I’ll show is the 27th of July. Based on our understanding of the Big Picture, our projection of a major move down was vindicated as the Bears were on the run. The rest is history. The green broken arrows are for profit taking and not significant market reversals. Since this post we have been nailing the market action on a regular basis. I can’t always nail every day’s action because analysis is based on probabilities and not certainties. But I do think that the analysis on this site will give you a substantial edge, and that’s all you can ever hope for from an analyst. An edge plus sound trading techniques is what you need as a day-trader to be profitable. Analysis is much easier than trading! If you have great analysis and poor money management, you will only lose your money more slowly.

If you’re not a subscriber, come and see what’s going on at this site for a month. It’s FREE and there are no hidden agendas other than winning you over as a subscriber. You won’t be getting phone calls and spam emails because we sell your information. Because we don’t. You might even pick up a few tips if you don’t stay. I’ll guarantee you that there are some helpful hints that you can pick up in a month that will benefit your trading.

If you like what you see here, wait to see how MortiES’s analyses can assist you in your everyday investing or trading strategy! Go ahead, check out my track record and

I am offering a 30 day free trial period to be followed by a new monthly price of $60.

If you like what you see here, wait to see how MortiES’s analysis can assist you in your everyday investing or trading strategy! Go ahead, check out my track record and

I am offering a 30 day free trial period to be followed by a new monthly price of $60.

Wave 3′s are often described as awesome things. This is definitely one awesome W3. Predicting the end of a W3 is as difficult in this direction as it is in an upward slope. If the market is going to begin a counter-trend move, I usually look for it early the session (1st 60 min.) or later in the day. I don’t fight a trend in the middle of the day. And IMO it’s best to wait for a bottoming formation to be there for a setup. Today I was looking for a possible counter-trend trade at the 1144′ish level, but ES was moving with too much strength when it hit that level and didn’t give any hint of a reversal. So I continued to play the short end all day.

I am putting a Weekly chart up for analysis because the shorter time intervals don’t tell me much. Right now ES has a lot of clear running until it gets to its next major target. I’ll be watching for a W4 to begin at any level, but I have to consider the Bear in control until I see something Bullish in the action. I’ve indicated some levels where we might expect support for this Bear move.