Yesterday I posted this chart on Twitter and asked what do you see? I received several interpretations from readers which were correct but responses didn't touch upon the real takeaway that I had in mind. Quite possibly, additional interpretations were made by many others.
The purpose of this post, as a follow up, is to highlight some of the conclusions that can be made without an elliott wave overlay to evaluate a market.
- The trend up
- Price remains bound within a large channel
The initial trendline drawn from the 2009 low extending to the first intermediate trough (July 2010) had a slope of ascent that was unsustainable and resolved in August 2011 with a break of the trendline. This lead to the second intermediate correction. The second intermediate trough forced an analyst to redraw the initial trendlines (now blue lower and parallel upper return line).
From August 2011 low, price rallied higher but has failed to:
- retest the underside of the initial trendline and
- reach the upper boundary of the return line
That is your first significant sign that the trend is slowing!
This progression of slowing momentum is illustrated with each set of channel lines. Notice that in each advance, price failed to reach the upper return lines confirming a deceleration of trend.
Note: You may also confirm this by using your favorite momentum indicator.
At yesterday's close, price is testing the upper return line of the last drawn channel. This is a resistance zone and the test thereof may bring in responsive selling. We'll see.
CONCLUSIONS
My point is, the chart shows traders and investors that the advance that began in 2009 is maturing and will continue in the direction of the prevailing trend until evidence manifests which prove otherwise. It doesn't matter what the elliott wave count is or what degree of trend.
While I assume most are still looking for entry into this market, given the mutual fund inflows. However, prudent investors might review their existing positions and contemplate the use if trailing stops, taking some profit and above all looking for reversal patterns!
I hope you found this helpful and as always....
Best of Trading
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Fair Disclosure Notice: I do not have a position in any of the aforementioned futures markets or securities related to this article.
