Pullback To Retest Lows?

Hey Market Pilot,

We had an energetic move higher over the last two weeks which started the day before the Federal Open Market Committee (FOMC) meeting and carried on past operating expenses (OPEX), partly due to a large amount of put options expiring.

Much of the talk right now is about how strong this market is, or that a bottom has been put in. This may be true for the near term, but I don’t think the absolute low has been put in and we need to be cautious that this could still be a bounce in a down trend despite the height and duration of the bounce. 

For those who are familiar with my Moxie patterns, the Elf Shoe is one that helps us understand where we are within a particular move. It helps us recognize whether we are in the first part of a move or a second part.

The first part is simply the first bounce, which is subject to failure due to the idea that price likes to pullback and test support before confirming a direction change. This means catching the first move can be riskier because it truly is just a bounce. We don’t yet know if the up move is confirmed or if the subsequent pullback is going to fail and keep moving lower.

I find the second move to be more robust and bigger, therefore that is the setup I have to be patient for here. It often means I will miss a portion of a run, but I trade the excitement of the first move, with the more planned, pragmatic setup of the second move which will usually go bigger and longer.

The drawing (pictured above) may be unfamiliar to non Moxie members, but this is the idea of an Elf Shoe pattern. And if you are familiar with it, then you can recognize that we are halfway through it with price being at the arch of the foot. Therefore, I am expecting some sort of pullback to retest the low area. At that point we will have to determine if price has found solid support and will continue up, or just some support and will eventually fail lower.

It is a critical time over the next few weeks, but it should be interesting as we watch the movements and how they develop in my book of patterns.

Your Profit Pilot, TG


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