Saturday, January 2, 2010

Critical Week Coming

Happy New Year!! I hope everyone was able to enjoy some time with family and friends. While 2009 was horrible on my trading account (to be discussed in a future post), there were plenty of lessons learned for me in both my trading and my personal life. In the end I believe I am better for it and come into 2010 with a great level of optimism (not for our economy or our government) for me and my family. We have faith, hope, charity, health, and freedom, and I believe those are key ingredients to being able to achieve the financial rewards in this life that so many of us seek. Well enough of my soap box and on to the charts...

Friday's reversal is either the makings of a 3rd of 3rd of 3rd or the end of an double zigzag corrective pattern. Whichever it is, it should be pretty easy to spot next week. Santa's rally did take it on the chin though as this nice little chart zooms in on the last 5 trading days of 2009. Will Monday and Tuesday reverse the losses or compound them?

So let's look at some charts. On the bearish counts, the price action would be counted as seen above.

While we have a key level right below us, it shouldn't hold next week in this scenario. If price consolidates in this area (~1110/1113) and then breaks below it, the selling should be fierce. Our confirmation for a change in trend continues to be 1094. While that seems like an eternity away in our 8-10 pt range days that we've become accustomed to over the last 60+ days, it is important to remember that 30+ pt days were common place during the first bear wave. A resumption of the bear will also bring a resumption of the volatility. The 10 day ATR is hitting lows not seen since the all time top was coming up in 2007.

How do we count the price action should next week limit the losses (or be up) and the following week bring follow through to the upside? Well, here are a couple of scenarios for higher highs. The wave B triangle (above) is still my favorite count. I've also seen suggestions that we are in an ED wave C, which while possible doesn't follow the strict EW counting rules with the 3rd wave being shorter than the 1st wave (seen below).

So there you have it. Key support level next week is 1110/1113 with a change of trend confirmation at 1094.

Key resistance level next week is 1118, which if the bulls can get above that will likely be able to take this to new rally highs.
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