9/22/11

The market went down today.

The challenge is in figuring out how to count most of today's action.  It looks like an ending diagonal, yes, but what would have to be wave [3] of the diagonal is the shortest of the down waves, and also appears to be a "three".  The first move up from the 1127.79 low (which I label Submin iii) is a "three", and the subsequent action to 1114.22 can only be described as a zigzag, running flat, and another zigzag.  It is therefore possible that the move is in fact a complex-correction B wave - perhaps aided by HFT algorithms suddenly turning to manic sell mode - but if so it's the most absurd B wave I've ever seen. 

Another possibility is that the move is in fact one or part of a series of 4-5-4-5s that are culminating, some earlier waves of which have .  If so, this may in fact be Minute [i] coming to its culmination, but at the very least is Minuette (i).  There is a gap to be filled at 1166.76.  (But if it is just Minuette (i), be afraid - you are talking about a 100-SPX-point move for Minuette (i) of [i] - which is part of the reason I'm thinking I may be a degree low on this chart.  My hopes and prayers go out to those with their life savings stuck in IRAs or 401(k) plans, particularly ones that don't allow you to be in cash or in bearish securities...)

The point is that the channel that the market has been in for a month or so has been breached, and that we now have a clear 5 waves down from wherever you consider the orthodox top.  While RSIs at small time scales suggest a near-term bounce, 30-minute RSI still suggests even further lows before a more substantive bounce (e.g. Minute [ii] of 3, or Minor 2/Intermediate (2) for those with the "this is wave 5 down" counts, which are technically still valid.)

I covered my SDS position in the pre-market for a sizable profit (though nowhere near as much as I would have made had I held on until midday), but probably will re-short if we get into the 1150s.  A 50% correction from today's low would approximate a gap fill (slightly less on a log scale, slightly more on a linear); a .618 would get us to 1178-79.  I'd find it hard to believe the market, particularly if it is indeed Minor 3 as I anticipate, would make a larger correction than that - it may just barely fill the gap and then proceed with Minute [iii]/Minuette (iii) down to well under 1100.  But it is possible.