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.

Wave C Underway, Then More Declines; June 18, 2009

The attached chart shows a typical EWP wave count with a strong wave C underway right now. My projected target is the previous 4th wave area around 924 in the S&P futures and 927 in the cash index. This rally is an opportunity for me to get heavily weighted on the short side again.

Nothing Changed; June 17, 2009

Nothing changed with today's action. If anything it just proved again that even after the Dow losing 300 points in two days, the bulls still cannot gain any control or strength. It's quite possible today is part of an ABC correction which will lead to a sharp wave C rally tomorrow. But that will just bring about a better opportunity to short some more as the ensuing decline should be quite fierce.

I remain staunchly bearish.

5 Waves Down Suggest Trend Now Down; June 16, 2009

The S&P cash index declined in a very clear 5 waves from the top last week. Today's decline was quite weak as far as breadth and declining volume, but not as bad as yesterday. The Dow has lost 300 points in two days and I now see a very clear 5 wave decline which tells me a short term bounce may be on the horizon. For this reason I sold some options against my short S&P ETF position and closed my very short term S&P emini futures position at a nice profit. The break of the ascending trendline on the daily chart I've talked about in previous posts, and now the impulsive clear 5 wave decline in the S&P cash index tells me the larger trend is down and the market should be headed to much lower levels after a possible short term bounce to correct the 5 wave decline.

My initial target for the S&P futures is the 880 level. I remain short the S&P through a bear put spread on the SPY and through a covered call strategy on the SDS. The next few weeks should have this market in a downtrend. So far, the decline is not exhibiting the type of behavior I would expect if the big wave 3 or C down is underway. Regardless, the market is headed lower in the short term.

Trendline Breaks, More Declines to Come; June 15, 2009

The S&P futures finally broke and closed beneath the ascending trendline established for months as shown above. This is what I've been saying would signal the next significant decline phase. This, combined with the very weak breadth as more than 93% of NYSE stocks traded to the downside and almost 5 1/2 stocks traded down for every 1 stock that traded up. Volume was a bit light but that just opens the door for more sellers out there to come forward and push this market down. All this evidence suggests that the buyers have become exhausted and there really aren't any more out there at these levels.

Expect the market to decline to the 880 futures level at least with last week's highs remaining intact.