Thursday, May 7, 2009

Cautiously Optimistic

So here's the good and the bad about today.

The bad:
- Technically our wave 5 of the ED was too large making the wave 3 the smallest wave. Obviously an EW no no. However, the spirit of an ED end did live out in today's price action: a very sharp reversal. So, right now I'm chocking it up to the market being a little rusty on its EW rules ;-).
- Although price looks impulsive (so far), we need substantial follow through to validate the pattern.
- I wasn't around this morning to short the top.

The good:
- Price closed below key support #1.
- After a clear overthrow of the upper trendline, price closed solidly below the upper trendline (actually both of them).
- The Nasdaq is leading the decline. Since the Nasdaq lead the rally, they should also lead the decline.
- My xlf puts are making nice money ;-).
- My last QID purchase (34.98) looks like it will turn into a nice winner.

As for price action, I have a few different bearish scenarios. Both show immediate downward prices. We should get a lower close tomorrow. However, if we close above the upper trendline tomorrow, then all bets are off. We may test it, but prices should immediately reverse down.


  1. Hello Rich...Tom in Wilm...I hope your scenario for a pop up to the 915ish area then collasping down pans out. I too think we will pop up today due to the bogus "Stress Test" results, then fall, but I think the 900 area will act as resistance and we power up to the Daily 200 mva in the next couple of days. The 200 mva by that time should be right at the past Jan highs = big resistance. If we power thru that and hold...geez, we could be in for a run to the Weekly 200 mva.
    You made a comment that the Nasdaq lead the Rally; but I think you need to look at the Financials...they led the rally. GS and MS bottomed last Nov 21, 2008 and the BKX joined in March 6th and they have been on a RUN. Have you thought of doing an EW analysis on GS? Until these financials roll over, we will continue on up in my opinion. I would love to see some EW counts on GS and the BKX.

  2. Hey Tom. While it is true that the financials bottomed first, I was thinking it a little differently:
    - the techs never broke their bear market lows (unlike the financials, which blew it out of the water)
    - the techs were the first to overtake their 200 SMA
    - the techs have stalled out significantly

    However, you are correct that w/o the financials rolling over this market will not. As for EW on GS or BKX, I have found that it is a lot of work for every stock you look at. Since EW is a 'masses' phenonemon, it also works best on those stocks that are most widely held, which is why I use the SPX (it is the most widely held index).