Thursday, October 8, 2009

Key Levels Defined for the Short Term; October 8, 2009

As I stated in my last post, the rally today broke out to a new high confirming that the drop of last week was 3 waves. 3 wave moves are countertrend, so a new high above 1080 is likely. The evidence strongly supports this as we have a 5 wave rally (see above 15min S&P chart) from the 1020 lows and it was done on extremely strong internals for 3 days in a row.

Today's action was a thrust from a triangle. Normally when thrusts are complete they return to the apex of the triangle, which in this case is the 1053 area. From there I expect the market rally hard in a small 3rd wave that will break through the 1080 high with ease.

The only thing that will negate this short term bullish call is if this month's lows are broken at 1020 before the 1080 level is broken. Now with 3 days of strong rallying and internals and the thrusting of a triangle complete probably, I do expect some pullback. But I'm doubtful the market will be able to reverse strong enough and find sellers to push through the 1020 level any time soon. But if in the event this does happen, IT WOULD BE EXTREMELY BEARISH. EXTREMELY BEARISH.

We'll see.


Michael Eckert,aka-Columbia1 said...

On the flip side, upside volume is low for much of a sustainable rally compared to the downside volume we saw last week during the sell-off. :)

Todd S said...

Good point, this is true. It makes it seem that the real heavy conviction is with the bears where just a small amount of scared bulls keep pushing the market higher.

Gustavo said...

This are the arguments from sustain the never end bull market, how was posted in Seeking Alpha:

Barry Ritholtz at The Big Picture outlines why this rally has legs, even after the S&P 500 has risen about 60% from its lows in March. He has four points:

1. Historically, secular bear markets, during which stocks generally decline over the longer term but see bullish rallies here and there, get massively oversold, then see a huge bounce. He provides these numbers: On average, a rebound rally following a severe bear market lasts 17 months and sees stocks rise an average of 70%. In other words, we’re not at the end of this rally yet.

2. In Mr. Ritholtz’s words, this is the most hated rally in Wall Street history, with professional and individual investors giving all sorts of reasons why it will end badly. “Most bull moves do not end when they are hated, they come to a halt and reverse when they become over-owned and over-loved,” he said. “We are not there yet.”

3. The U.S. dollar is weak. He doesn’t expand on this point, but we think he’s referring to the fact that the majority of sales for companies in the S&P 500 are derived from overseas markets. A weak dollar should drive earnings higher.

4. The stock market’s recovery from its lows in March has not been in anticipation of a V-shaped economic recovery (marked by strong growth and good times) or improvements in earnings. Rather, the recovery so far is simply a reversion to the mean as “the aberrational credit panic selloff gets unwound.”

In other words, the market is reflecting a more typical recessionary selloff now that investors no longer fear that the global economy and financial system are in ruins.

Really incredible!!!We are very very near.

Todd S said...

Thanks again Gustavo and good find. This overoptimism and bullish attitude is what's needed for a top and it confirms that this is a bear market rally and not a bull market. Bull markets should climb a wall of worry where most are always concerned of another collapse to new lows. I don't see anyone calling for that. The only big bears out there are Roubini, Meredith Whitney and Bob Prechter. The rest are in the Dow 30,000 crowd.