Monday, October 26, 2009

Short Term Possible S&P Cash Wave Count

The attached 15min S&P cash chart is a speculative wave count based on current structure at hand. This can change at varying degrees as it unfolds, but right now this is what we're looking at. The choppy and fierce up down movements count well a subdivisions of waves 1s and 2s at different degrees. Seeing as that wave 2s' psychology according the EWP is that of strength that usually results in a large retracement of wave 1, this count is sound so far. The reason is that wave 2 psychology is composed of people not knowing or feeling that a trend has changed and so they look at declines as buying opportunities to get to new highs. This is why the corrections in wave 2s are so deep and strong. But they cannot make new highs above the start of wave 1 according the EWP rules, and they eventually give way to wave 3s, which tend to be the strongest of all the waves in EWP.

Today's decline was impulsive-looking, and rallies were choppy and weak and reversed fairly quickly. Most evidence points to a top being in and the larger trend flipping to "down", but I'm waiting for confirmation before making the official call. NYSE internals were weak today with 3.25 declining for every 1 stock rallying, and over 87% of all volume occuring to the downside, with overall volume being strong and exceeding the 13 day moving average. Volume was also high on Friday and the internals were weak as well. Conviction and volume is re-entering the market, and it's resulting in lower levels. Remember, as I've shown before, most of the rally from the March 2009 lows has been down on declining volume. This is very bearish, and typical of a bear market rally, not a new bull market.

Now we now need to look at the ascending trendline to be broken, closed beneath, and held. This trendline has held up the market since March of 2009 so when it falls, so should the entire rally from March of 2009. That trendline crosses about the 1053 S&P cash level tomorrow.

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