The Rally Continues; Jan. 2, 2009

The rally continues to push higher, but on very light volume through the past few trading days. The key is what will happen when the big players re-enter the market sometime next week. 919 is a key level in the S&P and a strong break and close above that level should see the index headed charging for 950-1000. Unless the rally halts and sells off soon to relieve the dragging bearish divergence on all three momentum indicators (see chart above), then the more likely the reversal will be final and lead to new lows beneath 740.

Expecting Big Move at the End of Today; Dec. 31, 2009

I expect the market to sell off big at the close today. Currently the S&P is at 905

S&P Cash 15min Chart Shows Major Bearish Divergence; Dec. 31, 2008

Another quick note, above is the 15min S&P cash chart which shows all three momentum indicators at the bottom of the chart are not confirming the huge rally in the index. And the MACD is actually crossing lower and in the red even though the market continues higher. This doesn't tell us when the market will drop lower, but it tells us that this rally will be reversed at a large degree.

Caution Warranted as we Turn to a New Year; Dec. 31, 2008

Just a quick note: the market has continued this rally on somewhat strong breadth. I am very wary of chasing this rally at all because it's the end of the year and there's light volume today. I see this as a good opportunity to add to my shorts, which I did. I wouldn't be suprised if the market flips wildly in the last 30 minutes of trading today as players jossle for position into the new year. Wackiness is occurring today so caution is warranted reading too much into today's action. For example, the EUR/USD dropped 200 pips over night yet gold is actually up $5 today! Amazing. It's quite possible we will rally all day and then sell off hard into the close and then the selling won't stop for the next few weeks. Or, we rally today and a few of the first days in the January and then sell off hard.

I'm shorting rallies.

S&P Daily Futures Chart With Potential Bullish Targets; Dec. 30, 2008

Today's rally was strong other than it was on light volume as expected due to the holidays. With the rally unfolding today, we can see from the above daily S&P futures chart that there is a possibility the bullish move to the 950 area is underway. I listed 3 key resistance levels that should ultimately halt the rally, if it even gets there. Those are the levels I will most likely add to my short positions.

Rally Invalidates 5 Wave Decline; Dec. 30, 2008

In overnight trading, the Dow and S&P futures broke the beginning of the proposed 5 wave decline I labeled yesterday (see above chart) invalidating the wave count and conclusion that the trend was now down. With another failed test of prior support area in the 850s again yesterday, it's possible the rally to 950+ is underway. However it needs to get moving quickly because indicators and time are really not supportive of this move at this juncture.

I have not changed my strategy of holding fully short, and am prepared to add to my short positions on any significant rallying.

Large Swings at the Close, but Larger Picture is Bearish; Dec. 29, 2008

Above is an hourly cash S&P chart and it shows a strong support line (red horizontal line) in the 857 level. The market is telling us this level is important because it's bounced off it several times. Once the S&P makes a strong break of this level and closes the day beneath it, it should lead to an acceleration of the downtrend and target the 750 area. Despite today's strong bounce back at the close, we had a five wave decline, a choppy rise, and decliners outpaced advancers by almost 2-1 and down volume was 66% of volume was to the downside.

Regardless of whether or not the short term gives us a strong rally to the 950+ area, this entire rally from 740 looks very likely to be a correction. So I will be shorting any significant rallies.

Declining in 5 Waves Now = Downtrend Has Resumed; Dec. 29, 2008

The market has now declined twice in 5 waves in all the major indices. The evidence continues to point towards immediate market weakness instead of any strong rally occurring first. Above is the S&P 15min futures chart that shows a 5 wave decline, then a fibonacci 78% retracement, then another 5 wave decline. This tells us the trend is now down.

The next level the S&P futures needs to break to strengthen the bearish view is 852, and in the cash S&P it's 857 and 851. A break of those levels in both the futures and cash markets will confirm that a strong declining phase is back underway that should take the S&P to AT LEAST the 750 area.

Important Candlestick Forming Today; Dec. 29, 2008

The formation in the market tells us it's at a big crossroads and today could give us a big clue as to its direction in the coming days/weeks. If a large bullish or bearish candlestick forms today (see chart above) then it should continue in that direction in the coming days/weeks. So far the market is weak internally and nominally, but that can change in seconds with light trading volume today.