Chicagostock Trading

As soon as the SP500 hit its 100% Fib extension level of 1685.50, sell programs kicked in as the SP500 printed highs of 1685.75.  The move occurred after a squeeze through previous highs of 1673, seeing shorts capitulate which gave way to the 1685 print.  Smart longs sold into this bid to take profits. With longs taking profits, shorts already being stopped, the market fell down to retest its open. After trying to retest the highs and failing to find buyers at 1681, the market fell off to take out its session lows to reverse the intraday trend as more longs locked in profits and short sellers sat on the sidelines looking at the market drift lower.  With shorts out the market, this created a chase to the downside into 164650 to retest the pivot low of 1646 made last Thursday prior to Friday's move into 1665.75. A 40 point rejection off the top level of 1685 and a press to test the downside resistance range at 1656 to see if that old resistance acts as new support for a retest of the mid level at 1666-1670.  This has raised the stakes for bears as the range to defend has widened.  Failure to hold 1646 sees more shorts left on the sidelines and a wider range (40) to defend the high.  Market remains in its 5th wave that began on the breach of the old 1593 highs with a pivot low of 1530.75 occurring during the "4th" corrective wave.  As market moved past 1593, buy side chased and shorts squeezed from the 1593-1530 giving way into 1656.  Sell stops have built along this wave 1530-1685 below 1646, 1620, 1607, 1570.75, and ultimately the 1529.50 low from Cyprus.  Wave 5 ends on a breach of that pivot low that began the wave at 1530.75.  With that taking place, a confirmation will then be made that the move above 1593 was a failure and an "abc" corrective pattern can be seen should the market be able to bounce after breaking 1530 to retest the 1600 level and see if it can get back above. 

See: "SP500 Wave 5 How High Will It Go"

$VIX As volatility winds up, keep buying down to 13 based off failed breakdown to 11.stks.co/gT7M

— Chicagostock Trading (@Chicagostock) April 26, 2013

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The latest breakout above the previous high of 1593 is extending to be the 5th wave of the 2013 breakout above 1440.  As seen in the charts, the market has had 5 waves this year.  The first wave starting from the year lows of 1438.25 to the February high of 1530 rising 6.4%. The corrective wave off these highs retraced 52.6% to 1481.75 before stabilizing.  The breakout above the previous high of 1530 began the third wave up as the market rose 7.5% into 1593 in April before correcting.  The corrective wave off these highs retraced 56% to 1530.75 before once again stabilizing.  The latest squeeze through 1593 has become the new wave up, being the 5th wave of the bullish trend.  The 5th wave is usually the strongest out of the 1,3 ,5 buy waves as it attempts the final squeeze and extension of the trend, luring in the late buyers.  This happens as the market never pulled back to retest the April lows allowing for buyers to defend 1550s, and forcing a chase above 1600.  The chase thus far has been strong, with the market extending 76.4% above 1593 at 1648.75, and up 7.7% from the 1530.75 low, already a larger % move then the 1st and 3rd buy waves. Major resistance is being met at these levels. The range of 1593-1530.75 (62.25) completes at 1655.25 to be a +8.1% (1593+62.25). Next level comes in at 1666 to mark 1k points off the lows and 8.8% move from 1530.75, followed by 1685.50 as the 100% fib extension and 10.1% off the 1530.75 low.  As this latest wave pushes higher, bulls are most present and bears are ridiculed. Major upside targets are being thrown out, pumping the market.  As per the Elliot wave, once the 5th wave completes by seeing a correction off the highs, an a,b,c corrective pattern can be attempted. This can turn into a consolidation to build a base or a head/shoulder pattern as A is the wave off the high, B the wave to retest the high, and C the wave that fails the retest and falls to take out previous low from A which is needed to confirm change in trend.

Wave 1: 1438.25-1530.00 +91.75 6.4%

Wave 2: 1530.00-1481.75 -48.25 3.1%

Wave 3: 1481.75-1593.00 +111.25 7.5%

Wave 4: 1593.00-1530.75 -62.25 3.9%

Wave 5: 1530.75- *1685.75* +155 10.1%

Wave 5 ends when market turns back to take out the pivot low of 153075 that began the chase through 1593.

Sell stops are loaded up on the downside as the market built bases into the upside squeezes. These come in below 1620, 1607, 157075, 152950.

Going into May 6th, 2010, the SP500 was already having trouble on a daily basis, distributing within 1180-1220. After originally making a high of 1210.50 on April 15th, the market fell down to 1179.75 before recovering to take out the 1210.50 high and stop out early shorts.  This higher high up to 1216.75 failed to hold, seeing the market reverse to take out the previous 1179.75 low.  Lows of 1176.75 before another bounce was seen to retest the failed higher high at 1216.75.  The retest turned into a right shoulder as the market failed to push through the April 26th highs and fell through the previous low of 1176.75 to confirm a head/shoulder pattern.  Going into May 6th, the market had already broken below 1176.75 and had a target of 1136.75.

On the day of May 6th, 2010, the market was well below its 1176.75 neckline, opening at 1157.50 and making highs of 1165.00.  Pictures and videos of Greece riots being shown  added fuel to the fire. Things quickly deteriorated after the market fell below 1154 and turned the level into resistance.  This led to the head/shoulder target of 1136.75 to be completed.  With this target completing, this is when the flash crash flushed the market from 1130 down to 1056 before recovering back to the 1130 level into the close.

Eventually, the market retraced back to its broken neckline of 1176.75 by making highs of 1174.75 before turning back lower to "back and fill" the flash crash lows of 1056.  Lows of 1002.75 were made in July of 2010 before reversing off the lows and into 1127.75, being were the market failed the prior month in June.  With the markets back to whipping back and forth in attempt to consolidate and build a bottom, a retest of the 1002.75 lows was made with the market falling down to 1037.00 on August 25th just before Ben Bernanke's Jackson hole meeting.  During this meeting "Bernanke Says Fed Will Do `All It Can' to Ensure U.S. Recovery".  With the Federal Reserve promising to defend the markets, this turned the retest of the summer lows into a bottom and the markets turned higher to see a breakout "gap and go" on September 13th with the market making lows of 1108 and holding above the prior day's high close of 1105 to leave a small gap open, giving way for a short squeeze to move back higher and take out the earlier April high of 1216.75 which eventually led to 1373.50 on May 2nd, 2011 before going through another consolidation period that presented another correction, filling the 1105 gap. Another volatile period and more promises of support from the Fed led to another gap and go breakout to start 2012 with a gap open higher with lows of 1259.75, keeping open a gap down to 1252.50 from December 30th and giving way for another short squeeze to move back higher and take out the May high of 1373.50. Throughout 2012, the market kept this gap at 1252.50 open to create another bottom during summer, targeting the year highs.  Small correction in fall of 2012 as the 1441 upside target was completed, making highs of 1468 before falling down to 1340.25 in November to retest where the market broke out in August.  Since these lows, another gap has been made, with 2013 opening above 1440 with lows of 1438.25 and a previous close of 1420.  This has led us to where we are now as the market has gone through another major short squeeze, bubbling throughout the year to take out the all time highs of 1586.75 and breaking above 1600 on the latest non farm payroll number reported on May 3rd.  

When the FOMC came out with a 6.5% unemployment target, this put gold on the edge fearing higher rates.  This was enough to hold the 2012 double top after consolidating the 1600-1900 parabolic move with lows of 1526.7 and break below 1700 into 2013 to make this a new level of resistance.  January this year gold tried to rally only to fail at 1697.8 and break below the year lows of 1626 giving way toward the 2012 low of 1526.7. With the market falling below the 2012 low, this squeezed the 1526.7-1798.1 range, retracing the market near 50% of its 681-1923.7 move. Since hitting 1321.5 gold has reversed back above 1400 and quietly trying to fill back the breakdown.  The old lows of 1526.7 as the bottom of the 2012 range will provide a major area of resistance.  For the gold bull to take control after this 50% correction, a 7 day hold above 1700 reverses downside momentum and targets all time highs for resumption of the bull trend. Below 1526.7 will continue to give pressure lower as late buyers in gold during the parabolic move of 1600-1900 are caught holding higher prices.