Squawk Morning Briefing: Anticipating Chop

Tuesday’s action should have rewarded those who adopted our cautious stance. We noted that it was difficult to discern the short-term direction with the possibility that we could be heading either up or down. A decent opening bounce was met with both buying and selling, so it is possible to conclude that we saw both. While this may seem like indecision on our part, we take a more nuanced view.

The DJIA has been declining for over two weeks now, but as we have discussed in videos the move fall looks corrective. We know that corrective moves are choppy and unpredictable, so until the move completes one should anticipate continued sloppy action. Therefore, we have specific reasons to anticipate shake-out moves.

If the correction remains in progress the we’ll likely see lower prints before resolving to the upside. However, it will remain difficult to identify the short-term moves within the correction. Our plan is to continue waiting for clear signs that either the correction is over and we’re heading up or we see enough of a breakdown to suggest that we’re wrong.

There are some other possibilities which we discuss in the videos and we’ll keep updating them daily along with the signs we’ll look for to suggest a direction. For the time being, the wave structure continues to urge caution.

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