Stock, Option and Futures Trading

Stock, Option and Futures Trading

NQ bigger Outlook

June 1st, 2011

Looking at the NQ Monthly chart we have been watching the 2601 level as our first level where we would look for a potential major top. That level is only the first level there is also 50% retrace at 2836 and the .618 at 3319. If you look at the high at 2265 and now the high where we are currently at we call this current high a minor wave high type of structure. It does not matter what time frame you look at we always look for minor wave highs after a break of the last high.

Knowing this an benefit us in many ways. First off most traders try to buy a breakout of prior highs which is high risk even thought it is with the trend, why is it high risk? Because our stops are big on this type of trade. They are big if they are in the proper spot. If they are not in the proper spot they can be tight but you have a very high chance of getting stopped so what is the point?

In last nights post we were saying where we are at could be a minor wave high when we look back months from now. There is always two scenarios that could play out at any time.

Note: A minor wave high on a Monthly chart can be major to the weekly and daily chart but we still label it minor so we do not forget about the bigger pattern.

Scenario 1: This is a minor top on the Monthly chart and we start a correction for 4-6 months and then go up to the 2800 area. The NQ could retrace back down to the 1600 area and still be bullish. It would take months and months for it to retrace but this is scenario one.

Scenario 2: We only have a minor correction off of the current levels and we continue going higher in the same leg we are in now. If you look at the chart you will see that from the 1017 low to where we are now it is all one leg. Why is it one leg? Because we have not had a relative correction from that low to where we are now.

Since we have not corrected this is all one wave which means the ABC correction from the all time high to low is the pattern that is “In Play”. That means that the trend is still up on the Monthly until we complete this pattern at C.

The last high in this leg was 2435 and first pattern completion is 2601 so that is only 166 points difference. Maybe 166 points seems like a lot but we are talking about a leg that so far has been 1418 points. Even though 166 points could be close enough to the target to say this could be a top we have not technically hit the targets so we cannot say we have.

Of course patterns can fail that is how new directions start but so far we have not had that occur even though today was a down day. Today we came off of the 60 minute pattern completion and we can go down all the way to the 2275 and still be in a buy mode for a new high on the daily chart.

If we do make it down that far we will have another set of numbers for our resistance just like we did going into the high we made Tuesday. These are the 60 minute pattern numbers that we use for a 1-2 week outlook.

If you look back on a 150 minute chart look at the 3/3 high to the 3/16 low. That move was much larger than what happened today and we still went on to make a new high.

If 2275 is taken out the bigger lower support is around the 2100. Those numbers are far out and multiple legs away. For now we are going to obey each support zone if the market does start a bigger correction at this level. We never let 1 or 2 days change our outlook unless the pattern breaks and that has not happened yet.

Happy Trading,


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