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Sunday, May 9, 2010

Sunday's Observations

Here are the three possibilities for this sell-off if indeed it is an impulsive wave down from 1219.80.
The first, which is the brighter colored count, mostly in blue, except for the green 1 down at the lower right hand corner, makes the most sense to me because if we discount that 20-30 minute spike down mid-day Thursday, we end up with a nice place for the ending of the [iii] blue wave, followed with Fridays corrective price action as part of the [iv] wave. This is the most bearish, short-term count, with very little upside for the bulls before a large sell-off for the iii, and 3 wave down before completing wave 1 in green down around the 1020 level just shy of those 38% fib retracement levels in the chart below. I got the 1020 number by taking the mid point of the wave [iii] which is in the 1120 area, which would be 99 points from the top, and then subtracted that 99 points from 1120, giving me a rough estimate of 1020 if the impulsive wave down is text-book proportional. Afterwards we should have a nice wave 2 up rally retracing 38-62% of the sell-off, that would make the Bulls feel everything is getting back to normal, before the rug is yank from underneath them in a 3rd wave down.
The second option is the gray count, where the spike down is labeled with the 3rd wave in gray, a couple of degrees higher then the first possibility. This count would be very short-term bearish with one more sell-off to complete the 5th wave down, and test the low of 1065, and also the 50 week MA in the chart below, before we start retracing the 2nd wave up.
The third option (tan), which is from Roy's video is short-term bullish, before we get really bearish in a massive 3rd wave sell-off. This option has the spike down as the ending of the 1st wave down, and Fridays corrective move as the "B" wave of the 2nd wave up. This would also throw the bears for a loop, as we head higher in the first part of the week, breaking out of the triangle to the upside and making higher highs starting at 1138 (red dashed line). Using the standard formula for guessing the length of 3rd waves, 1.618 times the length of the 1st wave gives a quick number of 249 points for the length of the 3rd, just need to know where the 2nd wave ends, and minus that 249 points for a good guesstimate for ending of the 3rd wave somewhere in the 925 region.
Last but not least, one quick reminder, there is still a possibility that this sell-off is corrective, with higher highs to come, if we start moving above the 61.8% retracement level in a second wave up, bears beware!!!

I put together a longer term chart on a weekly scale to illustrate some of the important support and resistance levels for the coming week. The 20 week MA is the most important for the bears, as this resistance needs to hold or we risk challenging the 20 week MA at 1223.39 which would also be making a new high. And the 50 week is the most important support level for the Bulls to defend. Besides making a lower low, and breaking thru the 50 week MA, it also would be breaking a medium-term trendline of support, and open the doors for a major sell-off. There is an interesting confluence of Fib retracement levels down around the 1007-1014 level that would provide a good spot for a bounce if the 50 MA does fail.
The RSI does have a troubling aspect to it for a bearish case, it never diverged on the weekly scale, that is, the SPX's high, is also the high on the RSI, and normally for a major top, the RSI would of made a lower high as the price action was making a higher high. Never the less, both the RSI and the STO are now on a sell so maybe we do not have a top just yet, but the short-term direction looks to be down, especially if we can break through the 1065 level.
**** Roy over at The Elliott Wave Practitioner has put out a short video this week-end updating his counts on the SPX and can be viewed by clicking here!!!


  1. Hello everyone.
    On June could have happened much a mistake, I'm more inclined to this hypothesis. I know many think not, but an index to have this strange behavior and then come to regain much of the loss. If there was a mistake, the reason for cancellation of some orders.
    I happen to have a post on my blog which shows that in October 1987 there have been a much worse example caused by an error, came days after the minimum test and returned to its bull trend
    Call attention that no support was broken that led me to think that the bull was over.
    Since April of last year that my scores have been certain, and detected the bull by the beginning of April nasdaq100, so if he gives a signal bear will soon inform such
    I have a post with a chart of the crach of 1987
    Anyway I was cautious about the May 6
    Also said that one possible scenario was an attack in NY this weekend, but this is a speculation

  2. Thanks Mike as always for sharing your hard work.

  3. After all was always right, was a mistake.
    It's what I say very often but many still did not believe my statements since April of last year
    Colleagues a rule that you can never forget is that the main trend is rising and that in the last session it was not violated and even if it could make a double top