Monday, February 8, 2010
Market Reverses Late in the Day; Wave iii of (iii) Started?
The market fell mildly this morning but then showed some promising strength mid-day, only to get nowhere and fall off a cliff in the last hour of trading. If my count is correct, we are in a wave iii of (iii) of 1 of  or C. This wave (iii) should be fast and powerful and corrections can be quick and quite flat, like the wave ii that might have completed Friday and this morning. So today's failure to reach my S&P target area of 1080 before reversing is no surprise if in fact this is a wave (iii) we're in. Now today's late decline could easily be a B wave within wave ii of (iii), meaning tomorrow would bring about a strong C wave rally to complete wave ii; so slight caution is warranted for overly aggressive bears. However, the risk/reward at this point is so appealing because it may be the early stages of a wave iii of (iii) which should practically be a straight line down affair. So if I were to trade the S&P futures, I would short right now and put a stop just above today's highs. If the stop is hit, then it means we have a C wave rally left to complete wave ii and once that shows signs of a top I'd just reshort again. Again, the risk/reward ratio for possibly catching the early stages of wave iii of (iii) are very appealing right now for the bears.
The XLF tried to break through the important $14 level today by hitting $13.97 (according to OptionsXpress) but failed to do so; then declined sharply to a 2% decline on the day. This should be the last kiss of the $14 level for a while and this financial ETF should be headed to the $13 level in hurry, if not much further. The action in the XLF today lends itself to the bearish evidence that perhaps the stock market as a whole has topped today in wave ii of (iii) and is headed sharply lower as well.
The GBP/USD rallied modestly after I exited it early this morning, but sold off quite a bit since the last hour of stock market trading transpired. I still have a sell stop at 1.5530 to again get short this pair. Doing so would mean that I would have missed out on about 100 pips of gains. But I did so in trying to protect 300 pips in current profits. So it's still a good move on my part I beleive. If the GBP/USD, and other dollar pairs, sink to new lows soon, it will add more evidence that the stock market has topped in wave ii of (iii) and is headed sharply lower in the coming days.
PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.