Thursday, June 18, 2009

Probably Small Short Term Rally, Then More Declines; June 18, 2009

The mainstream media (mainly CNBC folks) are way to short term bearish right now to get me to fully dive right into the short side now. So many CNBC anaylsts and articles online are talking about a "short term pullback" that it has me very cautious about the market declining right now. The wave structure still leaves the door open for more time to elapse and higher prices before the next leg down. I am still very bearish in the next few weeks, but I think we need another "pop" rally to get rid of some of those mainstream bearish attitudes in order for the next leg down to get started. Tomorrow is a Friday which is typically a slow day so it's possible we just drift higher all day tomorrow. If not, I expect a sharp ferocious rally that will suck all those short term bears into the market to go long which will lead to a top and reversal. Whatever the method, I still feel we will climb a bit higher in the very near term here.

My chart above of the 15min S&P cash index shows my projection for the market where it rallies just above the prior 4th wave (typical in EWP) to the 50% fibonacci retracement level at a nice round number of 930. There's no requirement for the market to get there of course, it's just my best guess as to what I need to prepare for. I'm about 50% short right now and will increase to 75% short as the market works higher.

The bottom line is that the market is in a decline phase that should take the S&P to the 875-880 area before even considering a bottom. But in the very short term, a rally to the 930 is quite possible.


Anonymous said...

Do you see P3 as a percent decline or point decline? I have heard conflicting Elliott Wave opinions that P3 must be more in term of dow or s&p points down than P1 and other say it only has to be more in terms of percent decline which would make a big difference in the overall outcome. Do you know where we can find this information in Elliott Wave Rules?

Todd S said...

Wave 3 can be shorter than wave 1 as long as the 5th wave is shorter than wave 3. The bottom line is that wave 3 cannot be the shortest wave. So I would not get too hung up on predicting wave 3's length or bottom because wave 3's can go as far as they want to go.

I'm not sure what the rule says on the top of my head, but I have not heard of analyzing reliably with percentage points only. The focus should be on true value which is on points. Focus on the point length, not the percentage points. That's my opinion, but I will look up that question in the Prechter's EWP book when I get a chance and let you know what I find.

By target for the S&P to start to bottom is at 450. Yes, that's not a type, my ultimate target is at least 450, but possibly much lower.