The Arc of Opportunity is Almost Complete

What is the Arc of Opportunity, you might ask?  It’s reflective of the smooth, even transition that’s occurred recently in the Dow Jones Index.   You could name it whatever you like, actually, such as the “Arc of Shame,” “Arc of Buying and Selling,” “Arc of Transition” or whatever seems catchy to you.  Let’s look at it in its full glory.

This is a unique pattern that probably isn’t discussed in any textbooks, but the underlying logic is sound.

This represents an orderly shift from buyers to sellers in a clean, systematic way, as demand overcame supply, momentum decreased, and supply overcame demand in a rhythmic, almost ‘mirror image’ pattern.

I have been quite bearish on the short term because the potential of this situation occurring, which has played out according to expectation, but the up-days gave me difficulty in intraday trading – my bias was too strong to see how the market could go up, and that resulted in missed opportunities and small stop-outs.

We all need to learn that, even though the short term trend may be down, there is no such thing as “straight up” or “straight down.”

Nevertheless, this pattern (as I see it) is just about complete, and will terminate when price tests or breaks through the March lows.  I’m not sure what – if anything – the Federal Reserve has up its sleeve to save the market again.

In January, it was the .75 rate cut.  In March, it was the Bear Stearns bail-out and rescue.  In June, it was….

Be very careful in the upcoming weeks, and remember that volume can be lighter during the summer and moves can sometimes be more erratic.

Nevertheless, I thought this pattern was very interesting and offered a clear pathway for price, which provided good trading opportunities, once you got the overall short-term direction correct.