Sunday, June 6, 2010

Weekend Update

During the Globex session Thursday night, futures hit their correction high at 1108 before getting reversed. The market was already treading water in the red when the payroll numbers came out, and the buyers ran for the hills. It wasn't until price made its way to the 786 retracement at 1074 did the buyers come in and try to reverse the trend. I have to admit, that when I left to work I felt like they were going to close it green again, but that didn't happen. Instead that rallied failed and the market never looked back again.

Since price took out our x wave low at 1070, there is no other bearish option to consider except the start of minute wave 3.

Some observations:

- I think the market is tracing out a minuette wave 1 right now that will bottom some where between 1035 and 1055. We still have a subminuette wave 4 to finish (looking for 8-10 pts) before we'll finally see some buyers. By then I expect the divergence on the hourly chart to be massive and we'll be coming into a sweet spot on the charts for the buyers to take a stab. 1065 is the key support area, and that should be retested one final time before the bottom falls out. This will give the hourly charts a chance to work off their oversold nature and hopefully get some people on the wrong side of the next big move down.

- Now I would not cover any shorts and buy the house in this area (1035-1055) expecting a quick profit and a jump to the other side. I can't tell you how many times the market, when fragile, can just defy all indicators and go hard in one direction. This means that IF we do not get substantial buying in this area, THEN the market COULD go right off the cliff. I'm just saying if you can get in near 1065 AT ANY POINT tomorrow take it. There is no guarantee it will be back for 2nds.

- Once this low pivot (1040) is substantially defeated (by 10-20 pts), there isn't much between there and the low 900s. I see next big support in 920 area and this is where I would expect a minute wave 3 to end. From there minor wave 1 could end anywere from the high 800s to the March 2009 low. Look for minor wave 1 to end when the monthly RSI(5) is below 15 (currently at 43).

- From a time perspective, minute wave 3 could take 8-13 days.

- The RSI(5) on the weekly charts has lots of room before we are substantially oversold on the weekly charts (currently at 24 and could got to the low single digits)

Best of luck!
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