MCM Newsletter – Outlook for Week 9 – 13 May

Executive Summary:
Main Trend (weekly): neutral
Intermediate Trend (daily): up
Short-Term Trend (480&288min): down/neutral
Details:
The weekly cycles are still oscillating, however, as mentioned in the previous newsletter, the fact that the resistance level triggered is a significant event. That signals the crest (top) of the wave and although the market may choose to test that area again before heading down, the normal expectation is for it to hold any bounces and the market to move lower from that general area. The directionality tool did not yet turn down and once it does that will also be an important signal that the market is starting a more significant correction.

Weekly Cycles

Weekly Cycles

On the daily cycles, the up impulse started to unwind. As expected, the pull-back did trigger a bullish retrace (BR) on ES and on Friday it triggered one also on Dow. The normal expectation is for these levels to provide support and a bounce. If that comes to pass, the END resistance of that bounce would be a very important signal since that would mean that the impulse up either fully unwinded, or ended the first unwind phase (and a 2nd and potentially a 3rd END would be required). That level, viewed in the context of the resistance on the weekly cycles, becomes even more important and has the potential to mark an important top. There is one important thing to be mentioned about the potential END - it does not have to be higher than the previous high, just as the 2nd END (if we will get one) does not have to be higher than the 1st one. If the market fails to bounce and breaks these support levels for more than a brief spike, that would be more immediately bearish since it could start an impulse down. The directionality tool is still at the lowest point, if it will move upwards that would likely confirm that the bounce will continue and we will likely get the END higher. Additionally 3 consecutive LRE (lower risk entries) for longs triggered on the Dow and one on ES.

Daily Cycles

Daily Cycles

The 480 and 288min cycles continued their different developments. The 480min is still in an impulse down, after having held the back-test, while 288 is having a weak impulse up which is unwinding lower than the break-out level. Interesting is that 480min started to generate LREs for shorts - it had 2 consecutive ones (highlighted on the chart) which worked really well. Also 288 triggered 3 (highlighted on the chart) which behaved very well too. Another interesting fact is that the directionality tool on 480 moved lower from April 21st until April 25th and stayed at the lowest point until now. Near term it will be important to watch if the directionality tool on 480 will bounce and, if the market continues to bounce, what will happen at 2065 and another back-test of the impulse down on 480. It is important to mention that the next resistance level on 288 might be a 3rd END, which normally triggers a strong reaction.

288&480min Cycles

288&480min Cycles

In conclusion, the market may have registered an important high, at the level indicated by the resistance on the weekly cycles. Near term however, the normal expectation is for a bounce from the BR support on the daily cycles to unwind the impulse up. The behavior of the 288 and 480min cycles will be telling if we get the bounce indicated by the daily or not. 2065 ES and break-out into the down impulse on 480min is a key level. Holding that and/or getting a resistance level on 288 that holds, could see the support level on daily being under pressure again.

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