The bulls simply refuse to buckle. Despite a gap down on Monday and sharp decline Monday morning, stocks rebounded on Monday afternoon and continued strong on Tuesday. The ability to immediately recover should serve notice to the bears. QQQ formed a massive hammer on Monday and closed strong on Tuesday. DIA and SPY have falling flag patterns over the last two weeks. The chart below shows SPY with an inverse head-and-shoulders pattern working as well. The shoulder lows are about equal and neckline resistance is in the 133-134 area. I know the early March high did not make it back to the mid February high and this is not a "picture perfect" pattern. However, I don't expect picture perfect patterns. Markets are driven by emotions. Indices, such as the S&P 500, consist of many stocks. Instead, I look for the essence of the pattern. There was a little dip in late February, a big dip in mid March, another little dip in mid April and a clear resistance level. A move above the February-April highs will confirm the pattern.
Elliott Wave is all about counting and recounting. Rarely, if ever, have I made a count that stuck the first time and did not require a re-count. Looks like this time will be no different. The original count was for an ABC correction and SPY was currently in Wave C down. Monday's gap down is Wave-i down and the bounce back above 131 is Wave-ii up. I was expecting Wave-iii of C down this week, but the bulls had other ideas. Elliott rules state that Wave-ii (2) cannot retrace all of Wave-i (1). This means a move above 132.5 would negate this count. More importantly, a move above 132.5 breaks flag resistance and argues for a continuation of the prior advance.
Key Economic Reports/Events:
Apr 20 07:00 MBA Mortgage Purchase Index
Apr 20 10:00 Existing Home Sales
Apr 20 10:30 Oil Inventories
Apr 21 08:30 Jobless Claims
Apr 21 10:00 Philadelphia Fed
Apr 21 10:00 Leading Indicators
Charts of Interest: Tuesday and Thursday in separate post.
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This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.
