Friday, May 22, 2009

S&P Futures Structure Too Perfect??; May 22, 2009

Well the S&P futures have fallen a perfect 5 waves, then rallied in an WXY combination correction that halted right at the 38% fibonacci level before retreated ferociously to the downside at the end of today's trading. One more piece of evidence for the short term bearish case is that in late day trading the S&P cash market made a slight new high just above 895.61 while the S&P futures did not make a new high. As long as this divergence stays in place, the market is immediately bearish.

This is really too perfect and my experience has been that when the market unravels perfectly, be cautious. In the past I've used that to dive hard and heavy into positions and I've been burned a few times. I always have to remember and practice good money management no matter how "perfect" the setup looks. Analyzing and predicting the markets are never a sure thing, they only give us an increased probability when used properly.

I believe the S&P is in a 3rd wave now within an X wave. If so, the decline should accelerate next week in a continuation of yesterday and the very end of today's trading session. And despite the fact the market was up most of the day, declining volume well surpassed up volume on the broader market today, although there were still more advancers to decliners. But this is not consistent with the strong breadth we saw during the major rally phase the past few months. So it appears the major rally phase is weakening substantially and taking a break right now. I expect more selling at least into next week, but possibly much longer.


Anonymous said...

Do you think it is possible we are in wave 1 of bull market? Perhaps October crash was wave 3 followed by wave 4 up in Jan and Wave 5 down in March? If you say we are in wave 2 pending wave 3 and wave 3 is longer than wave 1 then we are headed to 100 on the S&P ?

Todd S said...

Thanks for the questions. Please see my June 1st post for a response to your question.