Wednesday, May 20, 2009

At Least Near Term Decline Unfolding; May 20, 2009

Today brings about a great trading opportunity. The market has been showing signs of weakness because the volume on the upmoves has been declining and breadth keeps flipping sharply to the downside when the market has decline at the end of the past two trading days. Plus, the VIX is looking very "complacent" right now, and the market has been shooting up and down wildly yesterday and today. This all has the signs of at least a short term top of some significance being at hand. If so, strong support should be at 875 and then 824 in the S&P futures and a hard stop can be placed just above the recent highs at 931.

The larger trend is down, and if you look at my daily S&P futures counts on the right side of this blog and in posts below this one you'll see that this decline is probably going to be a wave X or B. A final rally leg should ensue that should act like a bullish vacuum that should suck any remaining doubters or bulls into buying the market. I project that level to be just above 1000 in the S&P. That will be the biggest bull trap of all times and will lead to a catastrophic decline that should take the S&P to at least the 400s, if not lower.

But with the larger trend being down, this rally going almost straight up with no relief, and with a huge catastrophic wave C or 3 down on the horizon, I AM ON HIGH ALERT FOR THE BIG DECLINE PHASE GETTING UNDERWAY. So this decline will be labeled a wave X or B by me until I see evidence to the contrary, i.e. horrible breadth, high volume, and numerous 5 wave declines, etc. But for now, it's just a corrective decline that should eventually lead to higher levels before a major long term top is in.

Currently, my only positions are long the SDS (double short the S&P ETF) and selling call options against it. I have half of the total position I want to take on it at this point.

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