Monday, December 8, 2008

Market in Strong Wave C; Dec. 8, 2008

The market obviously did not collapse early this morning as I thought. But I did say that which ever way it moved, up or down, early this morning it would tell us the near term extreme direction of the market. We should be in a wave C within a larger wave 4 right now. The S&P should stay below the 1000 area but may be drawn to it. I'm a little hesitant about being aggressively bullish here for a few reasons:

1) the EUR/USD is near the top of resistance and is poised to thrust sharply down out of a triangle. This currency has followed the stock market so that would imply the stock market should fall as well.

2) gold also looks poised to sell off huge to around $600 soon, like this week! Gold has also tracked the stock market as well.

3) as seen from the above chart, breadth continues to weaken on this rally, although Friday and especially this morning, we saw a huge spike upward. But as the morning wore on, breadth significantly deteriorated.

4) silver, which is a measure of risk, is near the $11 "make-or-break" level I determined. I heavily shorted silver this morning because the risk/reward was too great to pass. So it appears silver, gold, and the eur/usd are at the top of their maximum ranges and due to sell off sharply very soon. It's possible the stock market can move opposite these things, but knowing that this rally is against the larger trend, I'm not going to get caught "long" this move.

I have some call options I purchased Friday and covered some short postions. Any signs of significant weakness in the market or the above mentioned currencies/metals, I'll move back to heavily short. But right now, I need to let this rally play out and plan for a rally to 1000 in the S&P just in case.

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