Sunday, April 25, 2010

Weekend Analysis

As I was going through the charts this weekend, there is a serious disconnect showing up in the charts and my labeling. How it will resolve itself will certainly be one for the history books, but one thing is for certain: bears must be patient in waiting for just the right time to take their next shot. That shot, may be right around the corner (read next 1-2 wks), or it may not come for 4+ months. Why the dispartity? Well, let's walk through the charts.

This first chart is the daily chart since the February low. Without regard to what has been occuring on the intraday charts, this chart has all the makings of an impulse move. With that said, I will give it my primary count and how I will use that count in explaining an opportunity that could be huge on the downside should price confirm the signal. What this chart tells me is that we are currently in a 5th wave and have met the minimum requirements for EW (a higher high than the 3rd wave high). Now, a popular way to look for 5th wave targets is to compare them to their 1st wave counterparts when the 3rd wave has extended, which it has done in this case. This gives us a 5th wave target of 1225 (using 1.382 extention of the 4th wave retracement), 1237 (5=1*.786), and 1251 (5=1). Since it is not common for the 5th wave to extend when the 3rd wave extended, we will leave our analysis there. Comparing wave 5 to wave 1 in terms of time, we have a time ratio of the 5th wave ending on 4/30, which is conveniently the end of the month.

This 2nd chart is the hourly and it is showing the bearish potential with a drop below 1188 on Monday as we clearly have a zigzag at this point in the charts. I expect the market to push us to at least the 1227 area in a 3rd wave, so keep that in the back of your mind as we see Monday's price action. All things point bullish, so if something else happens, then that is not good.

This 3rd chart shows how potentially vulnerable the market could be Monday with a potential 5 waves on the 15 min chart. A continuation upwards would immediately tell us that the wave pattern is subdividing and the bullish stance for the week should stand.

This 4th chart is a weekly chart from the March 2009 low. Now here's the real rub. The weekly RSI(5) is now at its highest point since the March 2009 low. This means one of two scenarios:

- Long-term Bearish: We are in the final stages of a C wave with a pending reversal coming (and based on the other charts in the next 1-2 weeks)
- Long-term Bullish: We are in a 3rd of 3rd wave right now and don't expect any significant pullback for another 4-6 months.

Price will confirm the scenario. The ATR is still in sell mode, but we have yet to have a solid weekly reversal signal. That is currently sitting at a touch of 1173; however, if we got a move below 1189, I'll be looking for building an immediate short position.
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