Saturday, May 16, 2009

Decline Should Continue Short Term, Then Sharp Rally; May 16, 2009


Above is the current daily S&P futures chart I've been showing that illustrates my projected path for the market over the coming weeks. As you can see, I expect further declines in the short ter into the congestion area of 770-820 where we should bottom and rally hard. If it's a wave C it will be an impulse rally and almost straight up, much like wave A from the March lows. That will be the final rally wave of the year and will bring about the shorting opportunity of a lifetime. From there, armaggedon will ensue that should draw the S&P down to at least the 400s!

So I'm on close watch for signs of this major top occuring; but as of now I don't see it. First and foremost the current rally is too small in size and short in time compared to the year and half decline preceding it. But also, I'm not seeing enough optimism in this market to suggest a major top is in. Too many mainstream talking heads are still skeptical of the rally and some suggest taking profits because this rally's gone too far too fast. This is not the behavior of a market top. I feel that this current short term decline will satisfy the corrective requirements these talking heads want in order to believe this market is in a healthy bull run, and so when the market bottoms around 770-820 and we undergo a fast and ferocious wave C rally toward the 1067 level, everyone will be jumping on board the bull run to catch the next bull market to S&P 3000! BUT THEY WILL BE WRONG. IT WILL BE ONE OF THE BIGGEST BULL TRAPS IN HISTORY, AND THE MARKET WILL GIVE WAY TO THE LARGEST AND FAST COLLAPSE SINCE THE 1920s-1930s!

I'm not going to miss that. My current strategy is that same. I'm double short the S&P cash by using the SDS and selling call options to collect premium. As the market falls, I sell for profit, and as it rallies I add to my short position. The largest trend is still down so I will play the long term downside potential for now. If I see a bottom forming in my sited 770-820 congestion area, I might try to go long conservatively. But for now, I remain short using a covered call strategy.

As for gold, it continued to push higher and my patience is at an end so I exited my remaining short position. With that in mind, the cruel market gods will probably send the metal collapsing lower Monday just to taunt me. But I need to find more profitable endeavors with my capital and I think the stock market structure is more clear and more volatile to where I should focus more on it. For now anyway.

3 comments:

Anonymous said...

Big Collapse based on what facts?

Michael Cny said...

Hey Todd, thanks for your great blog. I like the way you analyze the market. Do you still see the trend intact? Are we in wave b?

I have profited a lot from www.the-elliott-wave-practitioner.com, which I would like to recommend to you. The author Roy is posting videos analyzing rather short term trends on youtube - search unter "elliott wave". I hope this is interesting for you!

Happy trading and all the best
Michael

Todd S said...

Hi Micheal,

The trend is still well intact. Sentiment is at a bullish extreme just below the October 2007 top, and the S&P is only at the low 900s now and was at the mid-1500s in October 2007. Nothing fundamentally has really changed; unemployment is still getting worse and housing still has a huge inventory surplus. Besides, the decline from Oct. 2007 is a clear 5 waves so a new low beneath S&P cash 666 is required before any meaningful discussion of a bottom can take place.

I'll check out your site, thanks Michael!

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