Thursday, May 21, 2009

Friday / Tuesday will be key

Today's move was just as I outlined it this morning: a clear impulsive move to the downside. However, the way the move ended does leave me with a big concern that should be resolved Friday / Tuesday. Tomorrow is a half trading day and Monday the U.S. markets are closed. With so little market participation, I would expect a choppy day tomorrow with possibly a bullish bias.

Here are my two scenarios and the type of price action I would expect to occur in each one:

The Bearish Case
- The first chart clearly shows an impulsive move to the downside. It is textbook Elliott Wave. We sliced through a decent support area, and these areas will now act as resistance on any bounce.
- The move off of today's low (1 min chart) was littered with overlapping price movement.
- We are long overdue for a pullback. We have not even gotten close to the 38.2% retracement.

Should this be the future for the market, then my best scenario would be for today's gap to not be filled tomorrow. However, with expected light volume, certainly it is a possibility. If it does, the market should quickly reverse. If it doesn't reverse, then the bullish case is likely playing out.

Now, because buyers are making a strong stand in the SPX 875-880 zone, they will be the fuel for a very very powerful wave 3 of C, and the market should have no problem finding SPX 830 on the same day or the following. Yes, we could really have a 50 point move in one day.

The Bullish Case
- With today's low coming in higher than the previous low, it shows that the buyers overwhelmed the sellers in a key zone. Although the price action was impulsive, it was really the c leg of an a-b-c (3-3-5) flat.
- Friday's action should be very strong, fill today's gap, and close near the highs. Significant follow through should occur Tuesday with a new rally high.


  1. Why ABC instead of a 1 2 3 4 5 to downside or is the ABC just your short term play. Perhaps todays down move was and the up was 2? tomorrow be 3 on down? and the complete of the wave 1-5 will be the first wave 1 on the crash we about to get

  2. j0sh1ngU, there was overlap on the waves down to form the first wave a. So essentially I'm counting it as a corrective wave. Now if we start seeing an impulsive move on a daily chart, then I'll concede it is an impulse, but right now I think we do an a-b-c to 790-830 area, then an a-b-c up and then a 1-2-3-4-5 to 720 area to finish intermediate wave B of primary wave B.

  3. I'am just wondering if the recent top (930) is a wave 4 and we are heading into a final leg of wave 5 to 414 of S&P500 by the end of year.

  4. Spoken like a true elliottician! A case for both sides. Are you still as short as you were 2 days ago or have you exited profitable positions?

  5. Excellent,

    there are a multitude of sell signalls on S&P price, breadth, momentum, to recerse those, buyers have to hit the tape really hard,

    Int B can very well end up being an abc-x or a triangle, i.e. sideways and range bound

    so it's all left open till Tuesday, I guess

  6. Percy, certainly it is possible. But I wouldn't get too excited about that possibility until we clearly see some impulsive moves to the downside, which we haven't. Also, it is important to realize that the bullish move we've seen doesn't fit with any of the other corrective moves we've had in this bear market, so it makes most sense to count it as something different. If we did reach new lows, then I would probably lean toward the 930 top being the end of primary wave 2/B, and if that is the case, then we may go lower than 400 to finish off primary wave 3/C.

    Randy C - well since was forecasting 100%, you just have to look at my bad calls to see that!! I think that knowing key levels and how price is acting is critical to profitable trading. I did exit some ES shorts starting at 881, but unfortunately I didn't get out of all of them (I had triggers at 881, 878, 877, 876, 875, and 872, so only the first two got hit and I wasn't around to adjust them :-(. I also sold some covered calls, but not nearly enough to really protect me, so I'll be watching closely if we fill the gap. I'll either be adding to my QID position or selling for small gains depending on how price reacts at the first resistance zone (895-900). Otherwise I'll be daytrading in the morning ES to make money no matter what happens ;-).

    Piazzi, yes it is true. However, there have been so many buyers in the 875-880 area that if that breaks, they will be selling into weakness, which should cause a huge price drop to my target.

  7. I totally agree, I think it's basically a market of buyers at this point (bears are either hibernating or decimated), it all depends on when some deep pocket buyers turn and sell, we have ssen a couple of teaser days on that show already

    the 875-880 area is what everybody's watching righ now