There is a Bounce - How High Should We Expect it to Go?

Today’s chart is the updated daily. Notice that since TD Setup bar #9 was reached I have added the resistance line (horizontal dashed red line at the recent high) and the TD Combo count (in red). We have not met the criterion for our first TD Sequential day.

On Tuesday we concluded that any move up here is likely to be just a correction or consolidation. After that conclusion is reached it is a good idea to calculate likely targets for the anticipated bounce. To do so I have added Fibonacci retracement levels to the chart (horizontal blue lines showing the 38.2, 50, and 61.8 percent levels) as well as the TD Trend Factor target (the horizontal purple line at the 1131 level). With these levels calculated I then look for clusters between them and the moving averages. Therefore, when viewed from the close of setup bar #9, the targets were 1111-1113 and 1119-1120.

As we enter today‘s trading we have not met either target but did reach the first Fibonacci retracement level. When this occurs we want to see if the break was ‘qualified’. There are three different qualification scenarios. The first requires that the price bar immediately before the breakout close down (since we are breaking upwards) and was not met. The second option is for the market to open above the fib line and was again not met. The final option requires a bit of calculation. Subtract the difference between the previous day’s closing price and that same day’s true low. Then add that difference to the previous day’s closing price and compare to the fib level. If the final value is below the fib level then the break is qualified.

In our case the day of interest is February first since the break of the fib level occurred on the second. Now, subtract the difference between the closing price (1089.19) and that same day’s true low (1073.87; the close on Jan. 29 since it is lower than the low of Feb. 1). That difference (15.32) is added to the closing price (1089.19) and yields 1104.51. This final value is above the Fib level (just under 1102) and so the break is *not* qualified. And note that there was no follow-through the next day.

Does the lack of a qualified break mean the correction is over? Not necessarily. What we can say, based on the slope of the short moving average (in red on the chart), is that beginning today the target areas are 1101-1102 and 1118-1120. We will have to watch to see whether the market can make a qualified break of that same fib line.

As far as trading goes, the weekly support line at 1069.30 is still the critical area to watch.