Monday, January 4, 2010

Bulls need a strong day tomorrow or....

else we could have a massive down week. You see, the bulls used up a lot of energy taking the price straight up from Thursday's lows without any smaller retracements. Of course, a lot of that was likely a bit of a short squeeze, but the point is that the momentum readings as they sit right now would be supportive of a top if price rolls too far from here.

Take a look at the first move out of the triangle. We got a momentum high of 95 on the RSI(5) before getting an expanded 5th wave. If this is going to be a wave 3, then it must exceed the momentum readings of the previous wave. If this is just a final wave C to finish off a zigzag, then a weak finish would be consistent with the price action we've had during this bear market rally: namely a strong A wave and a weak C wave.

To look at the larger picture, here is our zigzag as currently labeled off of the March 09 low. Our first move (W Wave) compared to our current move (Y Wave) was much stronger in terms of price and time. You see, we're closely approaching 200% in terms of time while still short of 100% in terms of price. That is not a 3rd wave, but a typical holding on for dear life corrective wave.

That is why if the bull stops here to smell the roses, it may find itself in the slaughterhouse with the pigs...
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