as mentioned earlier, i plan to update many of the active trades on the site, particularly the short trades, which personally (and painfully on some, not so much on others) i have been given some extra leeway on their stops. with the weekend right around the corner and tomorrow most likely being a muted trading day as the market digests today’s gains, i plan to post most of the updates and possibly a video or two over the weekend.

i did, however, want to share a post that was sent to me from a fellow trader tonight. although i am not a huge proponent of elliot wave theory, i do find it useful at times. while i’m not overly focused on wave counts in the market right now, this large wedge pattern on the $SPX is the same one that i’ve recently covered in my weekly SPX charts. more than the particular wave counts, it is Daneric’s comments that echo my current thinking on the market. for years, i have highlighted wedge overthrows/overshoots as some of my favorite patterns to trade, as often prices make a sharp and powerful reversal in the opposite direction shortly following the overthrow. Daneric’s comments below:

The market did indeed lunge toward and overthrow its upper wedgeline on every major index. ”Overthrow” is typical of an ending diagonal triangle rising bearish wedge. It usually ends on excitement and a euphoric spasm. What better euphoric spasm but have the Fed pronounce – in effect – they will never let prices drop by launching yet more QE?

Prices did feel the wedgeline too. At the wedgeline – approximately 1450ish SPX, prices hesitated and then once they broke above the upper wedgeline things accelerated upwards in a spasmodic fashion. Likely breaking every possible last short stop placed in the market. Maybe there are a few stragglers left. As I said last week, no one who is short the end of a rising wedge can much hang on.

And the wedge will do just that – break every last short’s backs. But not necessarily induce more bulls. This is, after all, an “exhaustion”. Volume is drying up week after week although volume was big today which should happen on an “overthrow” move. Sentiment measures have again hit “extreme bullish” on many scales and many indicators. Shorts are nowhere left to be found.

So the key ingredients are likely in place: Lack of new bulls (one-sided trade) and exhausted bears unwilling to lose more money. In other words prices are ripe for a MAJOR collapse and a SWIFT collapse. Minus 4000+ on the DJIA within a few weeks/month is something that would not be out of the question.

Now the aftermath of “overthrow” is that prices do not stay over the wedgeline for long and collapse back under and retreat quite rapidly once the pattern is over. How long can prices levitate above the line before we consider it not a bearish wedge? Well it shouldn’t be long in my estimation. But since the wedge was over 2 years in the making we can give it a few days/week at most.

In other words, prices shouldn’t be continuing to race away upwards. Nor should they hover for too long at the current levels. So we have our “criteria” for whethe