Wednesday, February 10, 2010
Wave iii of (iii) Needs to Get Going Very Soon
This entire week of "rallying" has been done on pathetic volume, all of which stayed below the 13 day moving average. Today's big snow storm on the east coast didn't help matters as apparently many traders just stayed home. Despite an entire week in "rally mode", the S&P has only managed to take back 23 of the 106 points it lost since the highs of the year. Clearly a feeble attempt by the bulls, so far. If we're in wave (iii), as I suggest with the count in the above chart, this market needs to get moving to the downside very soon. Today we had another fakeout selloff that was met with a quick bottom and rally reversal. In the short term, this is a bear killer, especially if anyone is shorting on weakness as I suggested in previous posts. However stepping back and looking at the bigger picture, keep in mind that in 3.5 days, the S&P has managed to only regain 23 of the 106 points it lost as of closing today. Also, notice on my somewhat cluttered chart that today's break beneath 1061 confirms that the previous rally was a 3 wave affair, which is a correction. Again, this helps us determine that the larger trend is still down.
So when will the market tank in a wave iii of (iii)? Tough to answer but I'll do my best. As I said, if the market is in a wave (iii) then this market should be moving in a hurry, so this 3.5 days of rallying is a bit concerning to my wave count. However, it does look like a correction with the recent 3 wave rise, the sideways action, the declining volume and the inability to sustain any rally attempt. Note that my chart also shows a possible head and shoulders pattern forming (see red circles/text). When you consider this pattern along with the fact that the market made it just shy of the 61% fibonnacci retracement level earlier this week, it's possible this market has topped already. If not, any rally should be treated as a correction in my view and should be halted in the 1081-1092 area, leading to wave iii of (iii) down. 1105 should remain comfortably intact, but a break above that level would mean that a wave C of a wave (ii) flat was finishing up before wave (iii) begins. Even if 1105 is not broken, the longer this market churns upward and/or sideways, the more likely that we are NOT in a wave (iii), but are in fact still in a wave (ii).
To sum up, with the head and shoulders pattern and a common 61% fibonnacci level reached already, it's possible to call a wave ii top in right now, leading to a powerful wave iii of (iii) down almost immediately. If not, then I'm looking at the 1081-1092 area to offer a good topping level for wave ii of (iii).
My sell stop on the GBP/USD remains the same at 1.5555 where if it executes, my protective buy stop will be at 1.5760.
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.