Friday, February 7, 2014

22 Day Pullback

I laid out two possible scenarios for this pullback, a 13 day pullback that ends either today or next Monday, or a 22 day pullback that ends at the options expiration, on February 22.  I am putting my money down for the 22 day pullback, because we never got the flush out and panicky bottom that makes for a sustainable rally.  That means we are very close to the top of this bounce, because in order for there to be a sustained pullback with lower lows, we cannot go up for more than 3 straight days.  3 Days is the maximum number of up days allowed for this pullback.  If we have 4 straight up days, or break ES 1795, that invalidates the short signal.

Since this looks like a 22 day pullback, the downside targets will be lowered, I am expecting a test of 1700 within 2 weeks.  The catalyst is probably another China mini financial panic, but that is just a guess.


MM111 said...

Well, this is looking like this correction is over unless we get a down move Monday.

Market Owl said...

Yes, I agree, if we can't go down on Monday, then we're probably going to grind higher again. Just for the sake of better trading, hope the volatility stays. If not, its gonna get boring again.

Anonymous said...

Hi MO,

There are no major economic releases till Thu; unlikely to see a major change of momentum before then.

All three S&P 500, 10-year yield and gold had a sharp spike, immediately after NFP release. But only S&P 500 more than reversed the spike and is now much higher than before NFP release. However, 10-year yield is still lower while gold is still higher. This suggests that market has moved beyond acknowledging economy is getting weak and is now expecting un-tapering of QE. I think right now, it is still better to long 10-year and gold than short equity.

Any thoughts?

Market Owl said...

I am not enthusiastic about being long or short right now. I am not really bullish on bonds or bearish on stocks at the moment.