Saturday, October 24, 2009

Weekend Analysis

Well the last several days has been a whipsaw of emotions for bulls and bears alike. In the back of my mind I knew we had been here before, so I took some time to look at the last major top (labeled W on my daily chart). What did I find? Well the top chart defines it: a failed breakout after 9 days of distribution. I define a successful breakout as a close above the 38.2% extention of the breakout wave. You can see that although price penetrated the extention it failed to close above it. That was one of our major signs that a decent top was in. Of course, the correction failed to hit any of my targets and was a source of significant financial pain as the bulls held a critical level.

Today, the bulls are in a very tight spot. Back then, I was projecting a B wave that failed to hit my minimum target (mainly the 38.2% retracement). This time I'm projecting the beginning of primary wave 3, but of course a triple zigzag (or another X wave) could still be in the cards, but we have met every requirement for a primary wave 2 top: sentiment, price retracement, and time retracement.

However, you can see the last major top took 9 days of distribution with a failed daily bar penetration of the extention target. We may still have this in our future next week, so pay attention. We are currently in day 7 of the consolidation (if we don't close below Friday's close on Monday), so we may have another week of distribution at play. Any daily close above 1103 should put one of the higher targets in play (min 1130), so all we can do is watch and let the price action dictate our position.

I'm not going to worry about the squiggles of this last week. Let's focus on the most important closes right now: above 1103 or below 1074.


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