S&P Futures Structure Too Perfect??; May 22, 2009

Well the S&P futures have fallen a perfect 5 waves, then rallied in an WXY combination correction that halted right at the 38% fibonacci level before retreated ferociously to the downside at the end of today's trading. One more piece of evidence for the short term bearish case is that in late day trading the S&P cash market made a slight new high just above 895.61 while the S&P futures did not make a new high. As long as this divergence stays in place, the market is immediately bearish.

This is really too perfect and my experience has been that when the market unravels perfectly, be cautious. In the past I've used that to dive hard and heavy into positions and I've been burned a few times. I always have to remember and practice good money management no matter how "perfect" the setup looks. Analyzing and predicting the markets are never a sure thing, they only give us an increased probability when used properly.

I believe the S&P is in a 3rd wave now within an X wave. If so, the decline should accelerate next week in a continuation of yesterday and the very end of today's trading session. And despite the fact the market was up most of the day, declining volume well surpassed up volume on the broader market today, although there were still more advancers to decliners. But this is not consistent with the strong breadth we saw during the major rally phase the past few months. So it appears the major rally phase is weakening substantially and taking a break right now. I expect more selling at least into next week, but possibly much longer.

Updated Daily S&P Futures Chart; May 22, 2009

Above is the daily S&P futures chart and it shows my projected short term movement in the market with a lowered stop loss to 924 and support areas to exit or take profits.

At Least Near Term Decline Unfolding; May 20, 2009

Today brings about a great trading opportunity. The market has been showing signs of weakness because the volume on the upmoves has been declining and breadth keeps flipping sharply to the downside when the market has decline at the end of the past two trading days. Plus, the VIX is looking very "complacent" right now, and the market has been shooting up and down wildly yesterday and today. This all has the signs of at least a short term top of some significance being at hand. If so, strong support should be at 875 and then 824 in the S&P futures and a hard stop can be placed just above the recent highs at 931.

The larger trend is down, and if you look at my daily S&P futures counts on the right side of this blog and in posts below this one you'll see that this decline is probably going to be a wave X or B. A final rally leg should ensue that should act like a bullish vacuum that should suck any remaining doubters or bulls into buying the market. I project that level to be just above 1000 in the S&P. That will be the biggest bull trap of all times and will lead to a catastrophic decline that should take the S&P to at least the 400s, if not lower.

But with the larger trend being down, this rally going almost straight up with no relief, and with a huge catastrophic wave C or 3 down on the horizon, I AM ON HIGH ALERT FOR THE BIG DECLINE PHASE GETTING UNDERWAY. So this decline will be labeled a wave X or B by me until I see evidence to the contrary, i.e. horrible breadth, high volume, and numerous 5 wave declines, etc. But for now, it's just a corrective decline that should eventually lead to higher levels before a major long term top is in.

Currently, my only positions are long the SDS (double short the S&P ETF) and selling call options against it. I have half of the total position I want to take on it at this point.

Big Collapse based on what facts?; May 19, 2009

The title of this post is a question someone posted to this blog. It's an excellent question and I'm glad it was asked. My primary reason for suggesting a big collapse is coming is what EWP tells us. A five wave move, an impulse move, tells us which way the trend at one larger degree is. As you can see from my daily S&P futures chart posted on the right side of this blog, the decline from October 2007 was in a clear 5 waves. With 5 waves down, it means it is most likely either a large wave A of a correction, which means a wave C will take the market beneath the 2009 low before bottoming; or it's a large wave 1 of a 5 wave move and a ferociously devastating wave 3 will break beneath the 2009 low. So either way, according to EWP the market will make a new low in either a large wave C or 3, and both waves are very strong and ferocious in their nature. So according to EWP, a big collapse is coming.

I'm not much of a fundamental guy, but the fundamentals support this as well. More details on this can be obtained at www.elliottwave.com and Bob Prechter. But comes down to credit deflation. The past 30+ years had this economy and the stock market rise on credit, which is fake money. Now credit is drying up and and disappearing so all those values of credit inflated housing and commodities are now being destroyed. This deflationary spiral will not stop while housing continues to crumble and unemployment rises. There's much more to discuss on this issue and I am not an expert on the matter. I just focus on the technicals mainly. But if you'd like more info on it, please visit www.elliottwave.com. They are a great organization with valuable insight and seem to really care about helping the "little guy" out.