It's never easy

The market does not make it very easy to understand most of the time. Today is no exception. The scenario we expected is not being delivered as expected. There is a twist...!


Please click on the image for a larger view

This past Friday, the long term support line (11,500) was broken with a new low at 11,450. We now have a new long term resistance line anchored at 12,550 and sellers are now waiting at 12,150. When we have a one (1) box breakdown, there is always a possibility of a bear trap. That's the bullish argument. But until further evidence, we now have to treat any upswing as a corrective rally in an ongoing longer term bear market. That's the bear case.

Today's rally (at time of writing 10:30 eastern time) is impressive but there is a lot of resistance above starting with a short term resistance line at 11,750. We are still in a lower high and lower low environnement. I don't want to sound bearish but that's the current reality. We are under a [+2] channel resistance breakout signal which in terms of trading means that all my hedges have been sold.

For the bulls, there is still some hope and it is in the form of the head and shoulder that we have been discussing in previous comments. If this was indeed a bear trap and we get to navigate above the numerous resistances in the area of 12,300 to 11,750, then the market will surprise many players who may be bearish and/or sitting on the sidelines. This formation is still valid because the distance between the bottom of the shoulders is within the distance of the neckline.

The plan for this week is to enjoy the upswing and add to positions as the market breaks the back of the bears waiting at different levels of resistance. However, on the first sign of the bulls weakness (unable to hold support especially 11,450), the possibilities of a new bull market will be over and shorting will be the order of the day, and weeks, and months...

Pierre Brodeur