Monday, August 4, 2008

August 8, 2008; 3 Wave Rise at End of Trading Day

Well the market bottomed and rallied most of the day just I like called for in my previous post. It completed a 3 wave rise which confirms that the rally is/was a correction. I'm not convinced it's over though. It's correcting a 5 wave decline that took about a week to form. So in order for EWP's guidelines for proportion and the "right look" to be satisfied, I think another sharp wave C rally is due. The Fed meeting tomorrow gives that a good setup. But remember, this is all short term speculation I'm talking about here. The bigger picture is quite clear in that we're about to undergo, or are in the beginning stages, of a huge 2000+ point selloff in wave 3 of (3) down.

The above 15 min chart of the S&P 500 emini futures shows a 3 wave rise which I circled and labeled a-b-c. Over the past week or so, numerous smaller time frames show 5 wave drops, and 3 wave or choppy rallies. According to EWP, this tells us that the larger trend is down. Well I'm looking for a massive wave 3 of (3) down that will destroy the market and shed at least 2000-4000 points off the Dow in just a few weeks. If wave 3 of (3) is underway, it's doing it in undercover. Breadth and volume in the market continues to be flat or mildly weak. Not at all consistent with a wave 3, let alone a wave 3 within a larger wave (3). So I'm not sold yet that the big daddy decline I've been waiting for is underway. It just seems that the market needs one more big rally to get everyone "hoping" again for a bottom being in and a new bull market. That rally will relieve some of the bullish divergences I'm seeing forming and wake up the bears again to get in and enter the market heavy. But as long as I see 5 wave declines, and 3 wave or choppy rallies, I know the larger trend is down and I'm aligning myself with that trend and I'm maintaining my short positions until the market proves to me it wants rally big. So I'm heavily short now, waiting for the big daddy wave 3 of (3) decline which should bring the Dow into the 8,000 area and bring the bears a mighty feast of profits! The Fed meeting is Tomorrow (Tuesday), and over the past year, the market has rallied for a few days after the Fed meetings, only to roll over with heavy selling. We'll see if history repeats itself this week.

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