Wednesday, May 5, 2010
Selling Continues, but Getting Choppy
The market continued to sell off early in the morning, then some indices bounced into positive territory before tumbling again into the close. Overall, the decline from the S&P 1220 high is a bit sideways for my liking if the big wave  or C is underway. But that can quickly change as the structure unfolds. If wave  or C were underway, I would expect more of a sharp downward trajectory instead of all this swaying back and forth we're seeing here. But that's just a "feeling" and therefore almost meaningless when it comes to trading. What is of meaning is what can be illustrated and proven with data. Above you see an hourly S&P cash chart. Since I don't like the nature of the way the index is unfolding to the downside, I wanted to point out what's important; and that's the fact that the 3 declines from the 1220 high have all been composed of 5 waves. So this is elementary EWP telling us the larger trend is still down. Also, the series of lower highs has remained intact. So regardless of whether or not we're in wave  or C right now, as long as the market continues to decline in 5 waves and make lower highs, the short term trend is down. The most recent high that should remain intact is the one at 1205.13. Under the current structure here, I see little chance of 1205.13 being exceeded, and still being able to count a larger impulsive decline from the 1220 high as part of wave  or C. So a break above 1205.13 would make the chances of wave  or C being underway extremely unlikely. As I said yesterday, as of right now only a break below 1045 would confirm that wave  or C was underway.
Another thing to note in the short term is the price action today. Yesterday I stated that, "...I expect a drop to at least the 38% fibonacci level and prior congestion area of 1150-1160." The S&P dropped to 1158.15 this morning, right in the range I mentioned yesterday, and then reversed where it wasn't touched again for the rest of the day. This type of behavior when reaching a target range, along with the fact that it is possible to count the most recent decline as five waves complete (see above chart); it leaves the possibility for a larger rally tomorrow, and/or perhaps Friday when the jobs number comes out. A good target range for a short term bounce would be the 1180-1185 area. From there I'd be looking for a top and reversal with a stop level just above 1205.
So there you have it. The market is not declining as sharply as I'd expect from a wave  or C, but evidence still supports the bearish view for the short term at least. I won't trade based on "feeling", I'll trade based on what the market tells me. And right now the market is telling me the larger trend is down as long as the S&P stays beneath 1205.13 and it keeps declining in 5 waves. Hopefully the market can continue it's overall up-down sequence and I can continue to trail my stop loss downward. In doing so, it won't matter whether wave  or C has started or not because I'll make money on the short term analysis anyway.
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.