Saturday, May 2, 2009

It's Crunch Time

Well folks, after days of contracting range (the 5 day ATR is now sitting at 19.9) and has been in this area since 4/17, I think the market is ready for some major range expansion. With that in mind, we are ready for some 3 of 3rd waves, which, of course, are always very powerful moves. So, I've decided to put together some short term charts (I know I haven't done this for quite a while). Both of these pictures would fit nicely into the range expansion puzzle.

Scenario #1 - Bearish. This of course is my personal favorite as I am majorly short with options that expire in just two weeks. Without some downside confirmation, I'll be exiting all of these positions no later than Tuesday. In this scenario, we now hit a wave 3 of c. Because we will be breaking a major trendline in this scenario, it should be very powerful. I would expect it to take us instantly (in 1-2 days) to the 800-830 area.

Scenario #2 - Bullish. Under this scenario, the market has actually been winding up in an incredibly tight spring getting ready to blow sky high. This would be a 1-2, 1-2, 1-2, 1-2, 1-2 scenario. The odds of this happening are extremely remote, but we have to leave it on the table. The fuel for this explosion would be of course the short sellers. This should take us to the 940 area in 1-2 days, and would probably not end until 1000-1100. There are all kinds of problems with this scenario, but until we get a bearish confirmation, we need to be aware of the possibility.


  1. Hi Rich,

    Thanks for the great blog. Do you have a "line in the sand" for Mon/Tue where you will close short positions?


  2. Andy, I will start building hedges above ES 881 and cover over ES 890.

  3. Rich,
    The lowest in Tuesday is near 843 and the greatest option can be open around 900 in end of May as I said yestday.

  4. Nice clean charts, what software is it please ?


  5. bravo99, the software is amibroker. I pull the intraday in from my broker (IAB), but you can also pull eod data in from yahoo.

    frank - i have a bad feeling of it going that high. It may not stop until 940.

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  7. Thanks Rich. Nice analysis.

    Here are couple of FIB TIME dates.

    5/5 and 5/7

    11/4/2008H to 3/6/2009L=83TD 0.5 Fib = 5/5/09
    1/6/2009H to 3/6/2009L=41TD 1 Fib = 5/5/09

    11/4/2008H to 1/6/2009H=42TD 2 Fib = 5/7/09

  8. Looks like the market doesn't go down anymore, Rich

  9. I'm thinking this could be an "Unknown Wave Extension"

  10. Rich,
    I was hoping for scenerio 1 to come true. Hope and a dollar will get you a cup of coffee! As much as I know we are in a bear market and this is a bull trap, the trend is your friend. Unfortunately, I am sitting with a large short position at S&P 800 and continued to grow those shorts at 825,850,875. Hopefully, better days ahead for us bears!

  11. Randy,

    I feel for you.

    When it comes down I think it will fall like a brick out of heaven. Right on the head of a Bull.

    I can't go up forever, and even the fundamentals which I try to avoid are in our favor.

    It makes me wonder if the government is funding this rally by buying stocks.

    Watch the pivot points. This advance has be run by trading programs.

    Take a deep breath, and remember to breath.


  12. Guys, it sure seems that the market will never go down. Just remember the last move to 940? It had that similar feeling. Of course, when it rolled over, it couldn't go up LOL!