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.


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