10/6/11

The market went up today for the third day in a row.  What happened the last time the market went up for three days in a row?

We are currently sitting RIGHT on that resistance line I mentioned yesterday.  Maybe slightly over it, but not by substantial enough a margin to consider it a full-blown breach.  I have no positions - I got burned by my bad-decision illness short.  Also, note that I count impulse-wave diagonals as 1,2,3,4,5 rather than a,b,c,d,e (i.e. just because I say Minuette (iv) doesn't mean you might consider it Minuette (d)).

If in fact the downside (I'll call it Minor 1, for the sake of argument; it may be Intermediate (1) and the Minuette waves labeled on the chart above are in fact Minute waves) is not over, I would expect tomorrow to start falling right at the opening bell, possibly with a gap down that will be filled in Minor 2.  Futures action has been flat, but that's pretty typical of the "slack time" between when America closes and Asia opens, and during which I typically write most of these posts.

Should the market go down again, I expect it would do so in a capitulatory 5th wave move that would send it down in a quick burst (probably 3 or 4 days again) that would send the SPX hurtling toward probably 1040 - this is below the lower triangle line, but that is normal for the 5th/E wave of a triangle.  Should the market go up tomorrow and break this trendline (1220-1195-today's close), I would expect that that trendline will be the target for its B-wave retrace.

Strictly speaking the near-term bearish case is not eliminated until 1195 is breached, by which time we'll have made it most of the way up already.  A 61.8% retracement of the entire move from 1370 to 1077 is 1249-1257 (depending on whether you prefer logarithmic or linear); a 78.6% retracement is 1301-1307.  A 76.4% retracement, incidentally, puts us in the 1290s.

Christmastime has been mentioned as a possible time for a Minor 2 (Intermediate (2)) top, which meshes well with the "2007/8 is 2011" as well.  I drew three trendlines which go through two of the 1370, 1356, and 1347 tops.  Notice that at the weekly close for Christmas, the two steepest of these trendlines are within the resistance bands I mentioned.  (The shallowest, unfortunately, is not at the .886 retrace but below it - the .886 retrace is at 1333-1336.)