I just thought I'd post a "big picture" chart of the S&P. As you can see we're in for some very choppy and sloppy trading over the next few months until wave (5) of [1] bottoms. I see this as a good range trading opportunity, i.e. always have short and long positions on and sell into rallies and buy into declines. To do this I will own call options on the major indices and own double inverse ETFs shorting the major indices. When the market rises and falls I will take profits accordingly. The key thing to remember is that this decline is not over and that we'll make one more new low before we establish a major bottom and rally for months. Once wave [1] bottoms, most likely sometime at the beginning of next year, we will undergo a huge wave [2] rally that will last most of 2009 and the news and psychology will be overwhelmingly bullish. I can guess that this optimism will be due to the Obama hype that he will save the world. Wave 2's tend to be very strong and deep rallies so this will be a great buying opportunity. But until we make new lows from this year, the bias is still to the downside.
As for the short term, the rally continues to float higher with weakening momentum. I continue to short into the rally and will continue to do so until a major selloff occurs to relieve the bearish divergence in the momentum indicators. Right now, the more it rallies, the more it pulls back on the rubber band that will lead to a huge snap back decline. I think with the beginning of a new month coming next week, and black Friday sales out of the way, it opens the door for a large pop rally in to around 950 in the S&P possibly before it rolls over and sells off massively. Again, my short term target for the S&P is the 800 area to fill a small open chart gap. That seems like a good place to take a lot of profits on my short positions.
To sum up the short term: prepare for some more rallying to possibly the 950 level next week. But it will soon lead to a big selloff to at least the 800 area shortly after that.
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