Friday, July 24, 2009

We're coming to the end, but which one?

Today gave us the wave 4 I was looking for and a test of the highs. While we certainly may see more upside on Monday, it should be a sell any gap and the beginning of our first retracement since the rally began two weeks ago. Any gap down may not be filled, so be careful on the downside.

From a technical EW perspective, there is nothing to say this is not the primary wave 2 top. So keep this in the upmost part of your mind as the price action unfolds to the downside. However, we have not built up any divergences on the daily chart, so it would be more likely for us to pull back to the 925-940 area before moving to our final wave up and the end of this most incredible bear market rally. I guess you have to live through one to know how long and sharp they can be. But in the end, we will drive to new lows.

My turn dates still stand 8/8 - 9/8. If this is a b wave it should only last a week or less. That would give us another two plus weeks to finish off the last move up and put us right in the sweet spot for my turn dates.

Should we get a confirmed breakout below 925, then it is very likely over for our bear rally. A break of 869 will confirm it.

Finally, I'm going camping next week to Fort Bragg on the California coast. It will be a nice break from the heat (100+ degrees in the Sacramento area), so you'll be on your own as I forget about the markets and enjoy the weather with family and friends. Have a great week!

Thursday, July 23, 2009

The market is going parabolic

Well, one thing you learn is that when the market fails to obey the technical indicators, then be prepared for a strong move in the opposite direction. Brushing off all the indicators, that is what the market did today. And it did it in a big way today as the 5th wave extended.

With the price rising today to touch the bottom of my primary wave 2 target, you have to be on guard for the ending of primary wave 2 when this is over. If we're going to get a zigzag for the final leg, then price should never drop below 930. If it does, then we may have seen all that the bulls could muster.

Certainly from a sentiment indicator perspective we've started to see the signs that the bear is ready to return.

Headlines like:

- "Dow 15,000, Here We Come: Stocks Going to New Highs, Lemonides Says"
- "Stocks Are Cheap! Bull Sees Dow 10,000 By Year-End"

are the kind of crazy articles people come up with closer to a top then a bottom. We should get at least a retest of the highs to finish off this wave structure before we begin a move down. Price should never dip below 960 before the retest. If it does, then we may have had a very short w4 already in, and either we'll have begun a minor wave B or the beginning of primary wave 3. It will be interesting to see if price spikes the same way in reverse.

Wednesday, July 22, 2009

It looks like a top, at least a ST top

Okay, I hate to get overly excited about the patterns before they develop, but (so far) the price pattern sports a completed wave pattern. Let's peel back the covers and take a look:

- my w5 price target of 958-962 was hit today (high of 960)
- the pattern before the top was put in clearly sports the look of a triangle, which is a pattern before the finish (w4)
- the overal look into the finish looks like a messy ED, which makes sense because EDs occur when the market has pushed too far too fast w/o taking a breather, which certainly fits this pattern.
- the look off the top so far is reading impulsive. Unfortunately it is unclear if we have a 1-2, 1-2 or a small a-b-c at this point. We'll know tomorrow if we get a 3 of 3 or some more upside before a continuation.
- we are right in the zone of some very good turning points (solar eclipse, the annual 7/22-7/23 dates, and some other indicators I've found across the web)
- massive divergences have formed on the 60 min charts
- the daily chart is showing extreme overbought conditions
- the weekly chart is showing overbought

Of course, what we don't know is are we in a wave b or the beginning of primary wave 3. But that should show itself fairly quickly. I'll be watching how the price unfolds tomorrow and how we approach the 930 level. If we are in a B, then the 930 level is likely to hold (but especially the 915 level). If they don't then I will be leaning towards primary wave 3. We won't have confirmation until 869 breaks though.

Tuesday, July 21, 2009

All indicators point to the end of w3

Today was an interesting move for the market. All the downward price action 'acted' like the end of an ending diagonal. We got the classic 'throw over' and 'quick reversal' that accompanies the final stages of an ED. We got the most oversold readings on the 15min and 60 min charts that we've gotten since w2. So while w4 was very shallow, I have no other way to mark it. There are a number of scenarios at play here, and I think they are important to watch:

(1) w4 didn't finish at today's low but instead we've only seen the 'a' and the 'b' and we'll get the 'c' tomorrow. This would reach my original w4 targets in the 925-935 area.

(2) w4 did finish today. There is often symmetry between w2 and w4, and if compare the two corrective waves this is what I have:
- w2 was effectively 15 pts and lasted about 4 hourly bars
- w4 was effectively 14 pts and lasted about 4 hourly bars
We certainly have symmetry here! So how could our w5 play out?
- In this instance w5 can truncate (in otherwords we hit the w5 high at today's close and we have a gap down tomorrow and never look back)
- we hit our wave 5 target: 958-962 tomorrow and reverse
- wave 5 extends higher

Now it doesn't get easy at this point either. In either situation we will have a 5 wave completed price structure and a double top. The 5 waves could be:
- minor wave a. From here we put in minor wave b (somewhere in the 920 range) and then a final minor wave c to finish off a zigzag and primary wave 2 (980-1050 area)
- the end of intermediate wave C and primary wave 2. We have a double top and price collapses. I put this scenario at an equal weight to the minor wave a scenario.
- minor wave 1. Price retraces to the 915-920 zone and then explodes upward in a minor wave 3 (1050-1100) area, then we have a minor wave 4, and finally a minor wave 5 that will complete intermediate wave C and primary wave 2. I hold this scenario as the least likely to happen.

In the end I am saying be cautious. The 915 area should hold on any retracement for one of the bullish scenarios to kick in. If not, then the double top will likely hold and we will be visiting new lows in the near future.

Monday, July 20, 2009

Wave 3 Continued to Extend...

The market has done exactly what it should have done to keep the bullish tone. Moved up and given very little back. We are however at the end of our minute wave 3 with an ending diagonal that must terminate before spx 955 to be valid. A drop below 948 should be all the market needs to get the selling going for a minute w4. While the most likely target for a w4 is in the 925-935 area, it could extend as low 915. However, any lower than that and the bulls risk losing all they have gained.

Expect our w4 to take about a week, before the bull resumes in w5. We should see some nice divergences picking up during w5 with a possible major selling point near the w3 highs and ending what I will be labeling minor wave w. This is where it will be make or break time for the bulls. The move down off of minor wave w should stay in the vicinity of our minute wave 4. Once again, the bulls risk losing it all with much more selling than that as we would have a well formed top in place.

If the bulls can hold this area, then they will be in position to move the market up to our primary wave 2 target beginning at 975 and ending at 1050 although certainly the market could go higher than that, but that is the most likely ending point based on fib ratios, resistance lines and trend channels. I will be looking for a primary wave 2 to end sometime between Aug 8th - Sep 8th, which will give the final leg 1-2 months of market time to finish off primary wave 2. All in all this will result in a 6 month retracement off of the 17 month bear market and my price and time targets will finally be met.

Friday, July 17, 2009

No Surprises, yet

Today's tight range was the nothing out of the ordinary for an opex day. What isn't clear here is if our w4 completed today or not. If we break today's high on Monday, then my most likely count would be that w4 completed today (a triangle) and w5 should complete Monday. Since the pullbacks have been non-existent, we should get the first real pull back after the 5th wave completion. However, should we break today's low before moving to new highs on Monday, then today was likely only part of w4 and we should see the finish of w4 on Monday/Tuesday.

Here are my targets:
w5: new highs Monday Morning: 945-955 (w5=w1 / w5=w1*.786)
w4: lower low Monday Morning: 920-930

Once we complete w1/A (target 945-955), then the wave 2/B target will be 915-920 (area of previous w4 and 38.2% retrace).

Thursday, July 16, 2009

No Sellers to be found?

Looks like today gave us a 5th wave extention within the current 3rd wave. Tomorrow is opex so I wouldn't expect too much more than a range day. While I would be surprised to see the market drop below 923-927 for this wave 4, the bulls shouldn't have too much to worry about unless the gap at 905-916 gets filled. After this brief consolidation we should put in new highs. What will be interesting is to see how much of a pullback the bulls give the bears once the 5th wave is completed. Any support should be found at this wave 4, so if they give back more than that, then we may be in a situation where intermediate wave C completed in record time. We'll watch the pullback for signs of an impulse pattern.

Wednesday, July 15, 2009

Massive up day, but the bulls still have work to do

Ok, on days like today you can get killed if you aren't in sync with the market. Today was one of those days for me. One to learn from. A massive gap up and almost no retracement the whole day! I believed we were going up from the start, but I thought for sure we would get at least some pull back at the open. Oh well, that's why stops are so important!

Now, where do we go from here. Certainly there are still bearish counts that can be shown, but for the most part I try and show what I think is the favored scenario when there is one. So that is what I'm showing today.

However, I want to make clear that a close below SPX 911 would not be good for the bulls. If they are going to take this higher they need to hold the ground they've fought for and take some more. After 3 solid up days, the problem is that the market wants a rest. But too much rest from here and the bulls could get run over. The bulls have now taken the market to where it consistently lost ground in the past.

Tuesday, July 14, 2009

Strength Continues

The market didn't give back much today as it continued its consolidation. We are now approaching a very critical juncture and how the market reacts from here is very important, especially to those holding short positions (like myself).

We essentially have two scenarios on the table now:

(1) Bearish, the market turns down tomorrow and recaptures the 34 hourly SMA this week. This SMA is currently sitting at 886 and rising. If our next wave of selling is going to start, then price should drop below this very very soon (as in tomorrow would be great but no later than Friday).

(2) Bullish, the market has already completed intermediate wave B (23.6% retracement of wave A) and is poised to move higher. Getting above SPX 915 will be the first clue that we may be heading to new highs. Recapturing SPX 930 will be confirmation that we are VERY likely heading to new highs. What would my projection be if this is the case? Generally, when you have a large wave A and a shallow wave B, you end up with a shallow wave C. My first target would be a C=A*1.382 relationship at 979. C=A*1.5 @ 1012, C=A*1.618 @ 1046, and C=A*1.786 @ 1094. These would form my initial targets and I would fine tune them as the market unfolds.

Monday, July 13, 2009

Scenario 1 Gets the Nod

The market was pretty unforgiving in its reversal this morning. Once the gapped was filled, the market ran hard to the upside with a few stops to consolidate in very tight ranges. Since we have pushed the market into a very oversold condition (hourly charts), I would expect some back and filling tomorrow before resuming the move up to my minor wave x target (905-915). If the market is able to push through that area, then we have to consider the possibility of a retest of the highs.

One other note, should we break today's lows, then wave x (or some other subdivision) is in and we head down to our targets.

Sunday, July 12, 2009

The dam is ready to break, but when?

The funny thing about the market is it tries the patience of all. With a nice head and shoulders pattern in place and everyone talking about it, the question is likely not if it will be confirmed but likely when and how far a drop. One thing will be for certain, the move will not be text book.

From, here I have outlined what I think are the three highest probable paths the market will take:
- a bounce to the 910 area
- a solid break of the trendline with a selloff to the 780-815 area to finish off intermediate wave B
- a solid break of the trendline and an eventual move to new lows

Scenario #1: A Bounce
This is the fakeout scenario. This is where all the bears who recently got short have to cover and all the bulls believe we are heading to new highs. This is the scenario that will assure us that this is intermediate wave B and later in the year we will head to new highs. I'm looking for a close above 890 for this scenario and a strong up day tomorrow.

Scenario #2: The Bullish Sell Off
This scenario leads to an immediate and strong sell off tomorrow. As strong as the sell off is though, the market will begin to regain composure in the 840-850 area while the market continues to make its way to the 815 zone. Under this scenario, the bears will be disappointed as the market will regain its footing much to their dismay and begin a choppy range bound assent to new highs later in the year.

Scenario #3: The Bearish Sell Off
This is the beginning of the next leg of the bear market. Primary wave 2 will be over and the market will head to new lows. This is where the market takes back all the paper profits that the retailers gained off of the March low and likely some more as the Bulls try and catch a falling knife and the Bears who were looking for a bounce get run over in the fall. If the market does sell off tomorrow, watch what the market does on the way down. No need to be a hero and try and catch the turn perfectly when there may not be one.

So where do I place the highest odds? I would say scenarios #1 and 3. Both of these would hurt the most people (Bulls and Bears alike).

Thursday, July 9, 2009

No clear count yet

Not much to say today except point out a few observations. The wave count isn't as clean as I like to see it right now. And that usually means that the structure is going to be complex. What does that mean? Well, if I were to take the count to be most bullish, then we are currently putting in some kind a-b-c corrective move with some subdivisions. Not to say that the down move is over only that the selling will continue to be orderly.

What if I take the complexity to be bearish? In this case, then we are subdividing and gearing up for a massive push to the downside. And that push to the downside should start tomorrow.

Another intersting note today is that the healthcare sector (XLV), which is one of the 4 biggest components of the SPX sold off hard today. This has been the last sector of strength, and should it close below 25.40, then I think we know much lower prices are ahead of us. A move below today's low should also kick the selling in overdrive.

A break of the channel support line will also be our first clue that this will be an impulsive move down and not some abc-x-abc move. Let's see what tomorrow brings. Today's price action was very encouraging.

Wednesday, July 8, 2009

The ST EW Count Gets Muddy

I realize that with a daily post I need to say something all the time. Also, there is an expectation for an updated EW count with each post. However, after looking at the price action today, things are a bit unclear. So with that said, this what I am watching:

- 34 hourly SMA (currently at 896) should provide significant resistance to any upward move. If it doesn't then something is probably wrong.
- We broke through key support today, but couldn't keep price down. Price closed right at the bottom of the zone (still bearish).
- There is the possibility of a 1:1 wave parity at 864 for a complete A-B-C correction.
- The short term bias is still down as long as price stays below 930.
- Without a panic day (>4% down), I will continue to believe this sell off has been orderly and look to go long in the 815-840 area.
- The financials closed below a key level today (XLF below 11.20)

With that said, at this point I will stay the course. My plan still stands to begin taking profits and selling covered calls at the 850 area.

Tuesday, July 7, 2009

S&P: Lowest Close Since May 1st!

Today was the first major step towards a return of the bear trend. The market made an overnight high and immediately sold off once the morning session started. The technology stocks showed relative weakness all day and were the first to break to new lows. The financials, however, did show relative strength, and it won't be until they (XLF) breaks 11.20 that we will have an acceleration to the downside.

This first chart shows the big picture. While I currently have the waves labeled minor wave A and B with us currently in C, there is a more bearish alternate that I will bring up should one of two things happen:

(1) We put in a 5 wave move on the daily chart, or
(2) Wave C breaks 780, which means that the daily price action does not cross the 8 SMA before hitting 780.

Otherwise, I'm expect wave C to end somewhere between 815-840.

This second chart shows an up close view of the price action. Notice how price continues to respect the red zones I have put on the chart. Now in the third chart I have added a new zone, which is a key zone on the intraday charts. I expect price to find some key support in this zone but to eventually go through it.

Monday, July 6, 2009

Wave 2 Should End Tomorrow

Today's rally off of the low was only the end to minute wave 1/A. It hit precisely in my target for a bounce and we are now in our minute wave 2/B. Assuming we have more upside left after today's last minute rally, I'll expect the rally to die somewhere between today's close and SPX 915. The 34 hourly SMA should hold back any rally (a minor close above but shouldn't be more than 3 bars). It will be the next move down that will be the telling sign of a move to new lows or just an orderly correction.

Sunday, July 5, 2009

Down we go

The bearishness has returned. The question is: Is this a intermediate wave B correction or are we headed to new lows? I'm currently sticking with my intermediate wave B, but I'll be watching how this next move down unfolds. If the price action is unrelenting in its drop and slices through spx 815, then I'll begin leaning towards new lows. However, if the price action is choppy and orderly, then that will be confirmation that the primary wave 2 is not yet over.

My profit taking/risk management plan begins at spx 840-850 zone with covered calls on my qid and faz along with some possible july covered puts. But it won't be until spx 815 that I'll start to take profits on my qid/faz and put positions with a plan on leaving some on the table (hopefully the houses money at this point) in case we go quite a bit lower.

Wednesday, July 1, 2009

Wave Update

With today's rise breaking yesterday's high, it was obvious to everyone that the market was once again serving up humble pie (to yours truly). I would love to say that wave B was over at today's high, but without confirmation, I can't get too optimistic. What I thought was the key pivot break yesterday and impulsive move appears to once again be the 2nd half of a flat correction. The move today, which accelerated quickly but then just as fast ran out of steam, was like a rocket that had landed in the river and simply drifted over the waterfall.

Some interesting points about today's price action:
- price fizzled out right at the .618 retracement of my minor wave A
- price once again could not break through the heavy resistance at spx 930
- price has been unable to break out of the rising channel, but now may be in a nice position to break the channel to the downside tomorrow
- Tuesday's low is now the critical pivot. If it breaks it will represent a solid break of the channel and the hourly 34 SMA, which held price up last time (as it now sits at 921)
- I mentioned in yesterday's post that the first two days of the trading month have often been the high or the low of the month. If price turns down here, then once again we could have a solid monthly high put in on day 1.

So all I have are levels to watch. I will be adding to short positions on a break of spx 913.