Saturday, August 22, 2009

Bulls took control and more upside to follow...

Looking back at Wednesday's post, I put together a bullish scenario and also noted that with a break out above the high put in on Monday we would have a bullish bias the rest of the week - especially with options expiration on Friday. Too bad I didn't throw the other charts out, because that is exactly what we got. When I went to bed with the futures down 10 points I was obviously thinking something quite different. And that is the nature of the markets -- get you to take your guard down, so it can hit you hard in the kisser!!

With most of the punishment dealt, what's left of the wave structure? Looking at the 15 min chart it appears that we had a small wave 5 completion at Friday's high to finish off a slighter larger wave 3. Since wave 2s and 4s often show symmetry and wave 4s often finish at the wave 4 of the next smaller degree, I'm looking at a retracement target of 1019 - 1023 before we move to new highs with a target in the 1030 - 1035 zone to finish off an even larger wave 3. This should lead to a test of our breakout and a retracement back to the 1019 - 1023 area before we retest the wave 3 highs in our wave 5. I'm expecting our wave 5 to a double top to wave 3. That means either a slightly lower high (failed wave 5), equal wave 5 (exact double top), or a nominally higher high (same was wave 3 +/- 5 pts). At this point we're looking at c=a*.382.

Should we have a confirmed break of 1019 before any of those targets are hit, then the something more bearish is likely already in the cards.

Now, if the bulls can hold on to the retracement that follows keeping it in the bearish wedge channel that is forming, then they should have a shot at SPX 1050 for the end of primary wave 2. A break of the bearish wedge would likely kick off more selling and a break of 980 would surely kills the bulls once and for all putting the end of primary wave 2 at the 1035 +/- top.


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