The US stock market reacted this week, putting in a lower high on Tuesday. The monthly chart (not shown) indicates supply has come into the market. We may have seen the highs for a while, though longer term, we have broken above the 2000 and 2007 highs. As long as we remain above these levels, the long term outlook is bullish.
Near term, we have two down weeks after a strong run up to the top of the current uptrend channel on the weekly chart. Volume (supply) picked up over the last three weeks. We can see a reaction down to the bottom of the trend channel over the next few weeks.
For day trading on Monday and maybe Tuesday, the key level to watch is last week’s low (1632.75). The daily is in spring position. Although my bias is to the downside, it is important to be open to the possibility that Friday was a shakeout. Should the market spring last week’s low and begin trading with strength above that low, we will see it return to last week’s trading range. Failure to surmount and hold above last week’s low will likely result in further erosion in price toward the 1600 level, or perhaps a little lower.
Two Day Trades
There has been some wonderful trading lately, and Friday was no exception. Two trades set up against the market’s structure that the Wyckoff method identified. Both were shorts. After failing to rally above yesterday’s high, Trade A was initiated on a Hidden UpThrust against the breakdown of the morning session high with nice confirmation on the Weis Wave of both supply entering the market and a lack of demand at the trade location. Trade B was a classic short against resistance. Simple, uncomplicated trades against strong structure are always the best.
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