Thursday, May 27, 2010
Wave (ii) Continues
The above chart is of the daily S&P cash index. It shows how simple candlesticks can tell us what the crowd is doing. Tuesday the bears pushed the market down heavy, but the bulls sharply reversed that, creating a bullish reversal candlestick. After a small setback yesterday, the bulls regained firm control of the market today with about 3% gains across the board. Does it feel like a wave 2 yet? I'd sure say so. This wave 2 should alleviate the large amount of pessimism and panic that wave (i) of 3 of  or C created and get those cartwheeling blindly optimistic bulls back on CNBC talking about "great values" again.
Also notice on the above chart that strength is still showing in the candlestick formations. After a big reversal day Tuesday, today the market closed up big on its highs. This suggests we have a bit further to go for wave (ii) to end.
So far, I'm counting wave (ii) as a double zig-zag. It can always morph into a triple zig-zag, but I'll make the market prove that to me. The market closed above 1100 today so I'm already dipping my toe into the short side again with a stop just above 1174. The market has strong resistance to break through in the 1105-1120 range due to fibonacci retracement levels, and prior congestion areas. There's also an open chart gap at 1115 that will probably be filled before wave (ii) ends, so I'll be watching that level carefully.
So right now, it appears that wave (ii) is going to push higher and at least get into the solid resistance range of 1105-1120 quite soon. The action of the market around that area may help us determine how mature wave (ii) is.
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.