Well, that was a pretty good week for me (sorry, bears!). Although the market went much higher than I originally anticipated, I had a very good trade overall and I'm pretty happy with it.
As you may know, I love geometric patterns and symmetry and I play with various scenarios and see which pattern fits into different scenarios. Today I am going through some indices and possible chart patterns and see if these patterns are going to play out for the coming months.
Head and Shoulder Pattern
Here is Dow Jones Industrial developing a potential H&S pattern. Remember three drives pattern (incomplete) back in Sep & Oct, which drove everybody nuts? I'm delighted to say that they are back! If you take the triangles from Sep & Oct, and apply it to the current price movement – Voila! The price, angle, and time almost makes a perfect match! (assuming that it's going to drop down to the trend line to form a same pattern) I could possibly see the repetition of the left side price pattern on the right side for the coming months.
Gartley Pattern (possibly turning into Butterfly Pattern)
I have laid out this pattern with SPY a few weeks ago and this seems to be playing out nicely, and pretty much in line with INDU H&S pattern above – same price movement from a different point of view. This pattern is still in tact and if SPY goes above 78.6% fib, this pattern could turn into a "Butterfly" pattern and will be updated accordingly.
M Pattern
Here is a possible M pattern formation in IWM. IWM is one of the strongest indices of them all, and I'm expecting IWM to come to retest the recent high and possibly goes higher in the current price movement. Unless IWM breaks above the previous high and close above it, I would expect it to come back down to form an M pattern.
Three Drives Pattern
Here is UUP developing a possible three drives pattern. My expectation is UUP is coming to retest June 15's high.
SPX Open Interests
As illustrated above, my expectation of the general market for the coming months is pretty much a range-bound. I don't expect the market to crash down to 600 or go to the moon. So, whether you are a bull or bear, be sure to take a profit before it's gone.
One of the strongest evidences that I have for my expectation is SPX open interests.
As an option trader, I keep a very close look at the open interests, and they can tell you many things.
Although I forgot to take a snap shot of Feb SPX open interests, there were more than 150,000 open interests of both call and put options at a strike price of 1100 a day before OPX. Believe it or not, Feb OPX settlement price was almost exactly at 1100 (if I remember it correctly, it was at 1101).
(On a side note, when I saw SPX closing at 1106 a day before OPX, I was wondering how they (i.e., MM) were going to drop this tape as much as 6 points overnight (as SPX's settlement price is the opening price of OPX Friday), and Voila! ES magically dropped more than 12 points and came back right at 1101 at the open to make both ends meed. Speaking of market manipulation…..)
Now, if you go back to Oct of last year, SPX has been settled right around 1100 almost every month since Oct 2009, except for January 2010.
Now, if you take a look at March open interests, you would be amazed to see how many open interests you can find at a strike price of 1100.
Altogether, there are as much as half a million open interests right at 1100, and that is telling me that we are going to be in this trading range for a while.
I hope everybody has a wonderful weekend. To my surprise, we are getting a sunshine in a rainy Seattle this weekend!
