But What If The Chips Are … Down?
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Market On Open, Thursday 30 May
by Alex King
Enough of a selloff yesterday to break a few of our short-term equity futures charts. What does “break the chart” mean? It means that you have to re-draw the chart with the new information ie. the new price history, and then try to once again apply pattern-recognition methods to see where price may move next. In the Dow for instance, having YM futures drop below 38,800 means that the move up from the April 19 lows to the May 20 highs was probably a continuous wave upwards, not a 1-2-3 move as previously modeled. Why does this matter? Because if that’s true then it may mean that the current selloff could find support around 38,000 - this being the 78.6% retrace of that 4/19 - 5/20 move up - and if that’s true then it could mean the Dow is in for a sustained move up beyond prior all time highs. Perhaps. The thing with following price and letting price tell you what price may do is that you have to continuously re-assess your projections, because the only thing of which you can be certain is that you will be wrong. Which is what hedging is for. A topic we will revisit in detail on another day.
For now, let’s get back to our pattern recognition. As always in these notes, today we cover all four primary US equity indices (the S&P500, Nasdaq-100, Dow Jones-30 and Russell 2000); bonds (TLT), volatility (the Vix), oil (USO) and sector-specific ETFs including semiconductor (silicon being the new gold!!).
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