Monday, November 24, 2008

Rally Structure Turning Very Bullish; Nov. 24, 2008

The rally continued all day and has now traced out a clear 5 wave pattern starting from Friday's lows (see wave count on above chart). This tells us that the new short term trend is now up. This, combined with the very strong NYSE breadth today warns that a near term bottom may be in for the year, and a multi-month rally phase is underway. With 5 waves up now, and bearish divergence on the RSI (see bold blue lines on above chart), it tell us that at least a correction is coming. Not to mention we've rallied over 900 Dow points in 2 days. The key will be to observe the structure of the decline once this rally is over. If it looks corrective, then we'll look to exit short positions and flip to a more bullish bias. One area I'm looking at to do this is an open chart gap in the S&P around the 800 area. I feel any correction should at least close this gap. So that will be my short term target to close some short positions and perhaps start establishing long positions.

To emphasize, this is only short term bullish movement that should only last a few weeks, or into the beginning of next year. The larger longer term trend remains down. So I'm not a long term bull now, just being very cautiously bearish trying to make a little money on short term rallies.

Tomorrow should be a very telling day of where we're headed in the next few weeks.

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