Where do we stand? Part I

Although a counter-trend (bear market) rally may have started we must remember that the higher time frame (weekly and monthly) charts are on technical "sell" signals. The attached weekly chart shows how we had bearish divergence at the all-time high. Note we did not get a buy signal on this time frame this week.

Also recall my July 2 post. At that time I laid out a roadmap that gets us to a final low in 2008. I have no reason to change that view. In that post I hypothesized that the first intermediate low would occur sometime between now and November 2007. Again, I have no reason to alter that view. How we may get to an Autumn 2007 low is the subject of Part II in this little series.

Reversal Day Bar!

Another volatile day in the market – perhaps a short-term selling climax? After falling a good 45 points the cash S&P500 roared back to finish positive on the day. It was a REVERSAL DAY: the market made a new daily low but closed above the prior day’s close and the current day’s open. The trend to new lows was not able to be sustained by the end of the day as the bulls were in charge at the close. The RSI has now confirmed the bottom by turning up and we have a technical “buy” signal in place.
Although we slipped past the point where “b” is 1.618 times “a” (it was 1.742) the market reacted quite violently near here and so I will stick with my Elliott interpretation of an Expanded Flat. Why was the market dragged a bit lower than the 1.618 level? Perhaps two reasons: We had a nearby Gann target from the August 8 high and the market was drawn to the 23.6% retracement level from the 2002 low! 1370.1 is the calculated figure, the low was 1370.6!

Conclusion: A buy signal is in place but I still believe the larger trend is down. Now I need to get to work on determining where the next significant high (the "c" wave in our expanded flat which will end the larger wave 2 or b) will be.

From the Sidelines; Waiting

Not much to add this morning as I sit and wait. I can say that the momentum indicators have still not confirmed the new low (below that of the August 3 closing low) .... but that doesn't mean much if we can't turn upwards.

For now I will also stick with my Elliott count; although if this current decline (from the August 8 high) is a "b" wave it shouldn't go much beyond 1380. I don't like to see Expanded Flat patterns where "b" is more than 161.8% of "a".

With the way the futures are this morning I am looking at 1362-1367 and 1350-1353 as areas of possible support.

Patient ..... or patient?

Now that the cash S&P500 has made a new closing low for this move we have to ask if it (the patient) is in critical condition. Perhaps not, as the Relative Strength Indicator (Welles Wilder is a genius!) has not yet confirmed.

But is this bullish divergence? Not yet. The RSI must actually turn up without making a new low. The trader/investor must be patient.

Retest .... Done? or Ongoing?

The cash S&P500 index reached the minimum target pointed out in this journal last Friday morning. We certainly arrived there quickly! Was the low last Friday and subsequent move higher the expected successful retest of the low? I can't say for sure, can you?

I can tell you that we did not get a technical buy signal on the retest and so that facet of my work remains negative. Note also that we found resistance yesterday at the "red" moving average and the 50% retracement of the most recent decline.

My "gut" says we are going to visit the lows again over the next few days, get a technical "buy" signal and then rally upwards back towards 1500. All of this action, if it were to unfold this way, would be corrective (Elliott Wave Principle) in nature and part of wave "2 or b".

If it doesn't play out this way? No harm done ... I'm flexible. At the very least the weekly chart shows no reason to become a bull at this juncture. I continue to sit on the sidelines waiting for the next "clear" shorting opportunity.