Tuesday, December 30, 2008

Could it be an impulse!?

Today we got our anticipated follow through and then some and then some more. After looking at the price pattern I have to say that we could have the makings of an impulse wave. We need one more shallow down and up move to make the pattern complete. If we go straight down, then I think we end up w/ another ABC and we should be breaking to SPX 840 in the near future.

Let's assume we get our down up move tomorrow morning. Then the question is: was this impulse wave a 1 (as in SPX 960 here we come) or is it a wave A (as in we'll probably kill this rally around SPX 900). The pullback should be our key. Wave 2's have to challenge the new trend. That is why they are deep retracements. In this case, the Bulls would begin to question the CIT and the Bears would start dreaming of all their fat profits. We should get at least a 61.8% retracement and I wouldn't even put out a move greater than 78.6% if this is a wave 2. B waves on the other hand don't have to be deep and can be as shallow as 23.6%. On the 5 min chart I marked the areas where I thought the B wave might end or the wave 2. For a strong bull case, they should be prayijng for a deep retracement.

Monday, December 29, 2008

The Puzzle Continues...

The market is definitely not throwing up any softballs these days. While I got the triangle formation correct, apparently the degree of trend was not right. When looking at EW patterns the follow through is so important to properly reset the 'count' and correctly identify where you are at each degree of trend. 'Failed' new highs or new lows make things much more difficult. As do deep retracements (>61.8%). What we have had over the past few weeks is a steady dose of both. Looking at the chart I posted I circled two key areas. Essentially price needs to move beyond one of these areas to help us 'know' where we are in the count. I believe we will break the lower circle first and the higher circle 2nd. However, should we take out the higher circle first, then I will mark my wave B complete (light blue w/ dark blue lettering) and use the next pullback to go long. In this scenario we would have a 'failed' C wave as it never moved beyond wave A.

At the end of the day we were nearing resistance and looking overbought on the 15min chart. I don't expect much life left in this current move up, so I expect a nice pullback (50%+) before we move to the target area of ES 880-895 to finish off this wave B, so we can move lower.

Sunday, December 28, 2008

Christmas came and went and so the market decided to pass time as well. I hope everyone had a chance to get away from the screen and enjoy some time off with the family. I promised my wife I would leave Friday alone, so indeed I did. It looks like it was a good choice as no fireworks happened as I thought might be the case. In hindsight it should have been more obvious that the odds of a significant wave 3 happening with no one at the wheel was probably 0%.

Looking at the price pattern during this last week gives me two more obvious probabilities: (1) a wave b triangle has ended (top chart) and we'll start tomorrow off on a low note and never take out Friday's high, or (2) we are in wave minor c of a larger zigzag (2nd chart) and we'll top out on Monday before more downside pressure builds. Our first key level to break is SPX 866 and 860. After these fall, we should quickly head down to my target zone of ES 815-840 (3rd chart) before we get another bounce. If ES 815 holds, then that will likely be the end of our wave B correction and we should begin the journey to SPX 940-960 to finish off this wave 4 correction.

It is important w/ EW to take one day at a time. Corrections are always the hardest to forecast and this one is proving to be no exception. We have a good idea of our start and end points, but the path to get there changes all the time. For day traders, the path is very important. For position traders, the start and end points matter more.

Tuesday, December 23, 2008

The Charts Say: No Santa Rally!

This is a close up with the end of Monday and Tuesday's price action. Essentially, price moved up to much this morning to count the flat scenario as wave 1 and 4 would overlap. However, we did get an impulse wave off of the high (it isn't totally clean due to the extra wave at the bottom, but since price continued downward, that is the logically way to count it). I was looking at the financials and they have already taken out Monday's low, so it is highly probable that the big indices follow tomorrow. With a low volume half day tomorrow, anything could go, but I'm expecting follow through to the downside.

Here's a step back to the 15min chart to show the broader count. I had to change the degree I was at because time and price should somewhat correlate at each degree of trend, and it was going much to fast at the degree I was at in yesterday's count. Essentially, I'm looking for more fight between the bulls and the bears over the coming weeks until the bulls exhaust themselves and give in to the larger trend. We'll likely fall hard when that happens because they won't have any fight left in them!

Monday, December 22, 2008

Had to re-work the count...

With today's action taking out Thursday's low there was only one thing to do: and that is relook at the count and see where I went wrong. Corrective waves are so difficult to forecast because they can morph into so many different varieties of patterns. However, one thing is clear, we have not yet started our decent to new lows. How do I know that? Well, because these down patterns can only be one thing: corrective. Look at the chart below. This is a closeup to Thursday's and Friday's action. And there is only one way to chart that pattern. Now comes the hard part. Where do we go from here.

I have a couple of ideas. One is we are finishing up a flat and the other one is that we are doing a zigzag. Depending on where we go tomorrow, we'll know for sure. I'm leaning toward the zigzag pattern because a flat is a 3-3-5 pattern and although we could still make a 5 wave move to finish up the flat, the pricing pattern at the 1 min level looks too choppy for me to put a lot of confidence in this pattern. So I have mapped out a couple of alternatives at the 60 min level along with how I think price will move tomorrow at the 15min level.

Saturday, December 20, 2008

Santa Claus Rally?

The EW pattern strongly suggests we get one. However, if Friday's low doesn't hold, then I'll need to do a full re-evaluation on where we go from there. If I have correctly identified the pattern, then Monday should be a strong up-day, possibly with a nice unclosed gap up in the morning and continued strength into Christmas.

I have three charts here. The 1st one is a close up on Friday's price action. All of it has bullish undertones with clear corrective patterns. On Thursday I said I expected a retest of the Thursday lows on Fridays and that is exactly what we have (right now). If price doesn't hold here, then we have more downside to go, but the pattern (at least right now) still looks bullish.

The 2nd Chart is a 15min chart showing a little bit more of the picture. With the last chart (60mins) giving a nice broad view of the forest and where I think price action travels from here over the next 1-2wks to finish off wave 4 (a double zigzag). Once prices get into the red zone, then I will be exiting my longs and begin building significant short positions. Most likely in my favorites: GS & AAPL along with the Nas100 and S&P500 indices.

Thursday, December 18, 2008

So Far So Good...

Well, its hard to call it much better than it unfolded today. Now all we have to see is what happens tomorrow. Opex days have generally been bullish days due to the all the puts that have been written during the downturns that the MM would like to have them expire worthless. The top chart is a 60 min chart so that you can see the broad trendlines at play. We tested two very important trendlines today. Should these hold, then we should test the upper trendline (pink) around SPX 960 in the coming days.

The 2nd chart is a close up of today's action (5 min bars) and shows the relationships between the waves. This is another reason why I have confidence in the pending move. I did open up small long positions near the low of the day (and closed most of my short positions) but since I have yet to see any key divergences (ABC moves sometimes do not give divergences), I wasn't ready to go 100% long. There are a lot of S&P points to be made between here and 960 and I would rather be cautious than lose hard earned money at this stage. So I will wait for this up move to show itself (it should look impulsive), then I will close out my remaining shorts and go 100% long. Tomorrow we will likely see a gap up, a backfill and retest, and if that holds, then we're likely off to the races.

Wednesday, December 17, 2008

Wednesday - 12/17

Nothing too exciting today. We got some early morning weakness that was fully retraced on the SPX, but not on the Nasdaq. The market is still too stretched at this point to make much more on the upside without coming back down. There is a possibility that today was a failed high and we immediately move to new lows. A solid break of the pink support line will be our clue that the bulls have run out of steam. A break of 856.25 (March09 ES) will be our 2nd confirmation. Our final confirmation will be a break of 846. If the market tries to rally here without coming back down it will increase the likelihood that these levels will break at the first hint of weakness. So for now, a measured retreat is best for the bulls.

Tuesday, December 16, 2008

The Fed Moves to Zero and Market Rallies!

Well, you have to give Bernanke an 'A' for effort even if his policies will eventually be proven ineffective. Looks like enough players applauded his efforts and pushed the markets higher than I had anticipated today. In fact, we ran through a key level I had outlined in my 3 different near term market paths effectively negating both near term bearish looks. I'll have to update my longterm view as it looks like we may have in deed completed the Wave 3 at a larger degree of trend.

For tomorrow I'm looking for a pullback to the 880 area and then a move towards 960 before we top out and move to the final lows of this Bear Market. This move will have to watched closely because while there is room to move to area, the only EW requirement is to make a new high, after that it can turn down at any point.

Monday, December 15, 2008

Monday - 12/15

Well, today's action wasn't quite what I was looking for but the bearish case stayed in tact with some modifications on price movement. The financials continue to underperform, which gives weight to a bearish outlook. The fact that the retail traders are in charge is probably why we have any up movements at all as they are overly bullish right now.

Critical Juncture

I have a few different scenarios playing out this week. Price action this week should give us clues as to the broader pattern, which so far Mr. Market has been trying to keep a secret. Here are the key levels that need to be broken to confirm the probabilities of these patterns:

- Bearish Case #1 (bottom photo): We are in a Wave 5 (designated by the blue/light blue notation) Ending Diaganol. We have already finished waves a&b, and are now starting wave c (with d&e to follow). Wave c should take us to the 690-730 on the ES before turning up sharp in wave d. 1st level for this case is 846.75, 2nd level is 817, and 3rd level is 739. 903 on the upside must hold.

- Bearish Case #2 (middle photo): We are in a Wave 4 triangle (designated by the blue/red notation). We have already finished wave a, and are now in wave b. Wave b should take us to the 775-810 area. 1st level for this case is 846.75. 903 on the upside must hold and 739 on the downside must hold.

- Bullish Case #1 (top photo): We are in a wave 4 double zigzag (designated by the blue/red notation). We have already finished the first zigzag and are now in the last wave of the 2nd zigzag. Prices should take us to 970-1015 area. 1st key level for this case is 903 on the upside, 2nd level is 919. 846.75 must hold.

I will be watching the financials (xlf) and tech (qqqq) for hints of which pattern is more likely to happen. I doubt I would need serious modifications to these patterns this week, but I will be providing 15 min charts at the end of each day along with where I'm leaning the most (which is currently bearish #1 or #2 works for me).