Trade Bottom and Envelope

The last two days have defined the trade bottom for the first stage of deflating the Market Bubble, basically the area between 4222 and 4525 on the S&P. It is interesting that the volume was lackluster during that big move, that means that the FED was successful in scaring a majority of traders and investors. Now traders can use backoffs in that bottom range to initiate trade longs in the 4425-4460 SPX area. Update at 1:30 PM CST At the moment the trading range of 4450-4650 on SPX is being established.

What is important and which we pointed out in a number of charts over the past week, we have started into the volatile last stage of the 40-year supply-side / funny money asset market boom. Who knows what the top side of that volatility compression will be, but the main thing for me is to have conviction and fade price extremes in my trading. It will not be a buy and hold period unless you established positions in the market bottom defined area mentioned above.

Economic fundamentals during this topping phase will lean to high inflation, good employment figures, but poor growth due to excess inventories. The dollar which has been strong into the lead-up for this topping will probably fade, but it is not something that really enters into the equation, will probably allow gold to finally take-off.

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