Friday, November 11, 2011

Triangle It Is

Wednesday's downdraft seemed to confirm the zigzag pullback view, but the rally the last two days puts the triangle interpretation on top.  Overall the view is bullish with bullish seasonals and a bullish continuation pattern, but traders should be cautious lest the triangle become bearish by extending the consolidation into a larger zigzag correction as shown.  The most likely scenario is for a decline into the middle of next week followed by a breakout into and following Thanksgiving.

We also have positive developments with the economy as jobless claims fell again this week and consumer sentiment came in much better than expected.  Now we have the mix for a continuation of the rally with negative sentiment, positive seasonals, improving economic conditions, and a bullish trend.  Trading from the long side is the best bet until the end of the year at least.

The action early this morning made it clear that the market wanted to go up today.  I went long the ES around 1249 before the open on a breakout above a triangle pattern on the 5 min chart hoping for a move to 1276, but exited late around 1260 for a gain of 11 points.  I would hesitate to follow on Monday morning as the top of wave d should occur fairly quickly and maybe even Sunday night.  The best option for a swing trade is to wait for the wave e low around mid-week with a clear stop below the 11/9 wave c low.

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