After a huge move in US markets once again on Friday, I thought it would be useful for you if I mapped out the key areas above and below the market that you should keep your eyes on.
We are now testing key support and there are a lot of dominoes arranged below here that could see a sharp 200 point sell off (7.7%) in the S&P 500 over a matter of days or weeks. But if the January low of 2529 in the e-mini S&P 500 futures can hold we could be on the verge of a vicious short squeeze. Basically, the market is going to have a very sharp move from here in the short-term, but the jury is out on which direction it will be. In other words, it’s a spot where you buy volatility.
Regardless of the short-term direction into the end of the year, the bigger picture is starting to look more ominous and a quarterly sell pivot confirmation at the end of this month will increase my conviction to attack the market from the short side on any bounce into resistance.
In my first two updates I outlined the importance of understanding what the most recent buy or sell pivot was across different timeframes and also explained how ranges develop and where the market often changes direction within waves or ranges.
Combining this knowledge allows you to map out where the flash points are above and below the market so you can find good risk/reward opportunities, know quickly where you are wrong and find solid targets to take profit.
What can you expect to see next for equities?
If I was forced to choose a direction over the next few weeks for equities, I would say that we are nearing the end of the selling in the short term and could see a short squeeze into the end of the year as market players attempt to window dress their results in a tough year. But I will run away from that view very quickly if the January low in the S&P 500 gives way.
As a trader there is nothing worse than being wedded to a view. The market is so volatile that it will always give you an excuse to see and do whatever you want. Having a solid model of price action that gets rid of as much grey as possible is imperative. But it’s also imperative to keep reminding yourself that the map is not the territory. A model of price action is not the market. It is a model used to explain something that is incredibly complex.
As long as you remain humble in the face of such complexity and see your job as a surfer looking to ride any serious waves that you can find while taking as little risk as possible, you can survive and prosper as a trader.
Editor, Alpha Wave Trader
PS: In this just released report, Matt Hibbard shows you his top five dividend picks for 2019. Click here to claim your copy today.