Monday, June 22, 2009

More downside likely

In Friday's post I stated:

"If indeed, wave 3/c is going to get going on Monday, then I'm looking for a gap down below SPX 911 to really move price to the downside. If, instead, we open the day anywhere near Friday's close or higher, then the odds are in favor of the daily low not reaching below SPX 910."

Well, we opened very close to my 911 target and the selling kept going. The price action today was very indicative of a wave 3 with all rallies being sold. It's never safe to step in front of a wave 3 without something very solid behind you. The next strong support line is sitting at 875, so I think it is safe to say that there won't be any significant rallies until then.

How price reacts at the next juncture is important. If we're looking at an a-b-c structure, then wave parity is a strong forecaster of where price my turn. We do have 1:1 wave parity in the 875 zone, so that would be the logical place to buy. However, if primary wave 2 is over, then our stop at 875 will only be to consolidate and then we'll blow right through it. This will likely be our first indicator that the lows will be tested. If we do rally off of 875, then we'll be in a perfect position to complete a head and shoulder pattern with a rally back to 925.

My plan is to start taking profits at 875, sell some covered calls, and be ready for a reversal on my day trades.

1 comment:

  1. Hi Rich,

    In one of your previous posts you mentioned that Major wave B of Primary Wave 2/B could take us past mid 800s down to around 720 followed by Major wave c of Primary Wave 2/B all the way up to 1100. You mentioned that this corrective movement down past 875 could fool everyone into thinking that bottom testing Primary Wave C/3 was in play. Do you still have these targets and if we do break 875, are you shifting your count to a Primary Wave C/3 count being in play?