Tuesday, April 21, 2009

S&P Corrective Rally Should End Soon and Shoot Down to 780 Area; April 21, 2009

The S&P completed 5 waves down this morning as I posted early this morning and then spent the rest of the day rallying. However the rally was not very strong internally and on modest volume. Looking at the rally today it made it to the 50% fibonacci retracement level (see 60min S&P futures chart above). However it does look like a 5 wave rally, not a 3. So it's possible today's rally is wave A of an A-B-C rally that may take the rest of the week before complete. I will assume the rally is complete though until it proves to me otherwise.

What's good about the 5 wave decline is that it gives me a solid stop point. That stop point is at the 876 level to which I will completely stop out of all my short positions and finally throw in the towel and sit on the sidelines until the structure clears up. As long as the market trades under 876 I will remain short in the forseeable future.

I remain short my same positions but closed some of the options I was selling (the positions I was long the market). The more the market rallies, the more I will sell these positions and get more short biased now that my risk is clearly defined at the 876 S&P futures level.

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