A Symmetry Set-up for Next Week

I said in the last post that I would watch for an ABC correction (down-up-down) down to at least 1630. So far so good. The market sold down to 1635, bounced to 1674, and sold off again to close today at 1631. Of course, there are no guarantees that this is just another minor correction and we’ll be off to the races in a week or two (for the expected wave 9 that I mentioned on 5/15), but if it wants to do that then I think it makes sense to figure out where it might bounce.

One thing that’s good to watch for in the market is symmetry. One form of symmetry that occurs frequently is when different waves have the same length. For this current move down (the last couple weeks), there are three places to look for symmetry: (1) the last correction in early April; (2) the first push down of this correction (the “A” wave); (3) the first push down of this “C” wave (which itself might print an abc down pattern). In the chart below, the first red line is #1, the last correction. The second red line superimposes that move onto the market peak from 5/22. The first yellow line is #2, the “A” wave down, and the second yellow line superimposes this onto the “B” wave peak. Finally, the first cyan line is #3, the “a” wave down within the “C”, and the second cyan line superimposes this onto the “b” wave peak.

Thus, we have three separate symmetry targets, and in this case they all end in the 1622-1628 area. This is very nice confluence. It also lines up with a small congestion zone from 5/8 to 5/13. This looks like a nice setup, but of course there is no guarantee that the market will not just sell right through this area to test 1600 or below. So if you take this long trade, where would the stop go? The wisest option would be to wait to see if it puts in a strong bounce off the bottom (gap down or sell hard down into this zone then ramp higher the rest of the day, or something like that), then buy it with a stop under that low. This entire move since November has done of great job of not quite reaching downside targets where the shorts want to cover and the bulls want to buy the dip; when it reverses early then shorts and bulls alike are all scrambling to buy. Of course, a gap up and ramp Monday would accomplish this trap even better, so that’s possible too.

The ostensible bogeyman for this move down is rising interest rates, so keep an eye on the 10-year T-note (1.64% on 5/1, 2.16% on 5/31)  and also some (faux or not) news about the Fed not tapering QE Infinity until at least the end of the year.