Waves are inexorable. As inexorable as ocean waves that crash on the Golden Gate. From 10 minute to 6 year waves. But in the market a long wave up can be followed by a sidewave which takes the place and serves the function of a downwave. Wyckoff views these sidewaves as reaccumulation periods. Magee views them as necessary epochs in the life of a market. In this chart we see the glorious bull market of mar09. And we see it ending in a 13 month top of historic interest — complete with a subtle head-and-shoulders and the breaking of the most important trendline on the chart (mar09). And complete with a flash crash which offered bulls the opportunity to panic and bears the opportunity to feast on cojones de toro. But it didn’t happen.
The top is featured in the box. What happens after a top? What happens after the long wave exhausts itself? In a bear market investors get defensive, values are readjusted, panic and discouragement set in and smart traders relieve the short sighted of their money and positions — fully intending to hand them back at the next convienent top. And so life in the market goes on. In a sideways market confusion and chaos offer thrilling opportunities for far seeing traders to reestablish their positions and get ready to profit as the train pulls away from the station. With the timid and fearful either chasing or eating their hearts out on the platform.
And now what? The present trend tends to continue — so we will see sideways drifting higher until definitive upper momentum establishes a new bull wave. The PnF chart already foresees this wave looking for a target of 2549.
The bungee-like nature of the recent market is highlighted by columns of extreme os and xes. The target of 2549 is derived from conventional PnF methods. We believe that the target underestimates the market, which we expect to exceed that price.
Meanwhile we increased our positions in short the TLT, started scaling in to the Qs and increased our UUP (dollar) position.