Tuesday, March 17, 2009

It stopped at 750...I've changed my counts...

Ok, so in last night's post I stated, "So tomorrow we should be testing SPX 743. In fact, I would be surprised if we didn't test it during the Asia/European sessions. We should test it before we get any double close above the 15min 8SMA, otherwise the bears have no strength and it will likely hold for another test of today's high.". Sure enough, the low was 750 and we put in a new rally high today. The only thing is that just went from an impulsive wave to a corrective. The only way for it to get back to impulsive to run straight through the 780 overhead resistance far enough for us to get some more big runs in. Since that will likely not happen, I went through and decided to change my counts. After all, the market is like a puzzle with everyday bringing another piece. I think the picture looks clearest with this new count. So here's what I changed:

- I originally had a 1-2, 1-2 count for the corrective action that occurred from 1/20 to 2/9. Now, I'm counting that a wave 2 flat.
- Now, if we count that as a flat, then that makes our wave 3 clean with a finish at the 667 low. I realize wave 1 is the longest, but that breaks no EW rule. The only rule is that wave 3 cannot be the shortest.
- In addition, this gives us an ending diagonal for the 5th of 5 of 3, which explains the choppy 3 wave look at the end.
- Now, since wave 2 is now a flat, we should get a zigzag or a double zigzag for wave 4. Which is how I'm counting it now that we got one more high today. If we top near 780 (a possible one more high tomorrow), then that would end perfectly with our fib relationships as w=y at 779 and the 'c wave' of y = the a wave *.50 at 780.

You add in the dangerously high reading of the mccellan oscillator, the massive bullish sentiment, the extreme overbought conditions (for this downtrend), the massive divergences on the 15min chart and soon to be 60 min chart, and you have the recipe for bull soup.

We believers in one more low also have one more hurdle, the fed day tomorrow. Generally, this has been a bullish day, but it is not 100% certain. I'm not sure the last one we had after such a run up, so it should be interesting.

Here is what I'm looking for:

- A double close below the 8SMA on the 60 min bars. Currently sitting at 763 and rising. This should lead to a move below 750, which would be very bearish.
- Once we work through 743, which shouldn't provide as much resistance now that 750 is in place, we will attack 713.
- 713 is now the key pillar to the bull case. If the bears break it, we should break the bulls and go to test the lows. If not, then the low (for now is likely in) and the b wave will not be as strong as it could have been.


  1. Good evening (3/18) Rich..Kidflare in Wilm, NC; I've been reading alot lately that this present Rally is mostly Short Covering. How does anyone know that? Is there any "indicator", web site, or other way one can determine that?

  2. Hey kidflare, I don't know of away one can "know" this is mostly short covering. However, one way to look at charts is through the eyes of fear and greed. Fear is a stronger emotion and accompanies fast moving charts (generally to the downside as people are fearful of losing everything). We've had such a fast rise off of the low that it can only be the fear of shorts covering as quickly as they can. Certainly there is panic buying (fear of missing out), but in the end true buying is steady and sure. If this is the next mini bull (3-6 months), then after we get a nice correction (to scare the bulls) then we will get steady buying. I'm not yet convinced, but certainly this rally feels stronger than anything we've had lately.