At the moment, a candle formation is unfolding just after pushing the 8427 level that I have been writing about. And if this candle closes in this configuration, it is a sign. Keep in mind this period has at least 10 more hours before the candle is official. The close will more than likely determine if this market is going to retest a lower level, or continue the initial rally leg that has been building since the Senate hearings on Tuesday.
One of the basic tenets of is that markets trend. Trends occur on every time frame and carry different weights. A 1 minute trend is much less significant than a 4 Hour trend, etc. Over the previous month, the intermediate trend has been , while the bigger picture is still . This can be confusing and is why it is so important to know what time frame you are looking to operate on before taking any trade.
In order for this intermediate to break, the market needs to fail to make a new low and instead, take out a previous peak. This is a process, not a single event. 8171 to 4983 is a major (.618 of entire structure) but does not guarantee a reversal will materialize.
One scenario that will signal the return of strength before it is obvious is what I call the broader higher low formation. "Broader" means it must happen on a large time frame like a daily or 12 hour. A convenient for this higher low is the 7149 to 6677 minor (.618 are of current swing).
If price retraces from the current , I will be watching this minor for reversal patterns. Since the 8427 resistance was compromised, I am anticipating that there is a greater chance the minor support holds. A reversal off of this zone should then lead to a higher high if the market is changing direction.
Keep in mind, a broader higher low does not necessarily lead to a new . This market may become more range bound before the bigger picture reasserts itself. The focus is to observe the signs and anticipate the most immediate move relative to your time frame and adjust accordingly, not to "predict" the broader moves of the market and feel good about being "right".
In summary, this market is not out of the clear yet. IF the minor support in the high 6Ks is broken, this market may retest lows. IF the support holds, then anticipate the next resistance to be compromised and adjust accordingly. I am playing the bigger picture and in a situation like this, my choices are to add to my position, decrease my position, or do nothing. Since I am sticking to my bigger picture plan, I will not be shaken by a new low, I will just hold on to what I have and wait until the market shows a more supportive environment. This is not that difficult to do because my position is not margin based. I compare it to holding physical gold as opposed to paper gold ( ). IF the higher low forms, I will be looking to add once more, and from there only add on resistance break outs. My decisions are a function of the time frame that I am operating on, and is key to avoiding confusion and sticking with the plan.
Questions and comments welcome.
In day trade period (next 6-12 hours) we could play our longs until we test 78.6%. Then look how market will react and possible open short with target 61.8% or lower (50%).