Do you feel confused? Well, so is the market...

With the rally late on Friday extending as much as it did, it sure makes tomorrow's forecast that much more difficult. In times like these, it is important to go through the facts:

- we're in a downtrend and that won't end until we get some kind of capitulation on high volume (volume on Friday was not impressive)
- Since Feb 9th, every rally has been sold
- the daily SMA is still sitting at 715 and will be taken out during our upcoming w4 (if this is it)
- we are deeply oversold (likely the key reason why shorts decided to take profits off the table late Friday)
- the nasdaq finally began to outperform the spx to the downside on Friday for the first time in over a month
- significant resistance is at 700, 725, 740, and 780
- key retracement levels for a w4 are 715 and 745

So, depending on your trading instruments you have to manage risk differently. For example, out-of-the-money puts that expire in two weeks may need to be sold if the downtrend doesn't continue Monday, but short positions (especially ones that aren't significantly leveraged) could be held comfortably knowing the bottom is still lower.

Now, to the charts...

I'm not sure if I would lean one way or the other as to which chart is my preferred count. I hate 1-2, 1-2, 1-2 counts because at some point you realize that you were wrong more times than not. So here are the scenarios:


#1 The bottom drops out of the market next week. Key confirmation points:
- Friday's low is broken to the down side within the first 2 hours of Monday's session
- We close at the low on Monday
In this scenarios, the bulls finally give in. We should see SPX 600 this week.


#2 We have started our w4 bounce. Key confirmation points:
- When we get our retest of Friday's low (very likely to come) the retest holds. I would count any retest as price moving to the 670 area and holding
- We close above the daily 8 SMA
In this scenario, we will likely chop back and forth. We likey will test our 700 area get rejected, and hold Friday's low. This would be our first clue that 700 will not hold again and we will move the 725 resistance. This wave will likely be a triangle.