Bulls Showing Strength

Another strong day in the equity markets has caused our Elliott work to step off track. The move up from Monday’s PRP low has now created a situation where the trend in the PRP’s (higher lows and higher highs) continues; and the end of our wave is deferred. The “I was wrong” point (stop loss if you will) of 832.98 has been breached and the immediate bear case proven wrong.

I will now wait for the next PRP high to form (to which should be no later than Monday) to see whether the RSI (top pane) can confirm the new high in price. Please note that we are still in a general area of resistance.

Even though the rally from March 6 is more powerful than I would have thought I will stick to my March 24 thoughts that had the view of “ … we get a new low (below 666) before a potentially large multi-month rally can unfold in equities. Today’s chart shows that a large Expanded Flat pattern may be unfolding from the November 2008 low. Under this scenario the cash S&P500 can’t move above 877.86. If it does it will imply that the low of the year is in and that the market has started a large fourth wave rally that will last into early 2010.”

Retest!

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The move up from Monday’s PRP low continued yesterday and the “retest” of the 832.98 high is underway. Wednesday’s price action confirms Monday’s low as a price fractal and filled the gap on the chart from 809-813. We will know whether the bearish stance is correct or not very soon.

The market closed at resistance yesterday. Further overhead resistance (see today’s chart) lies from 820-822 and then 827-828 (final area before the previous high).

The futures are up strong as I pen this (+14.5!). Let’s see if the bears get gored today.

Headed Off at the Gap?

On Tuesday the cash S&P500 formed an “uptrending” price bar on the daily chart. This is where the bar’s high and low is both higher than the high and low of the trading bar preceding it. This type of price action raises the odds that Monday’s low was a Level 1 Price Reaction Point (PRP). If so it would mean that the short-term upward move I spoke of yesterday may well be underway. If so it should run its course over the next couple of trading sessions and as bears we don’t want to see such an up-move exceed the “I was wrong” point (stop loss if you will) of 832.98.

As an interesting Fibonacci point please note that the 779.81 low on Monday was at 127.2% of the 3/25-3/26 swing and a 78.6% retracement of the move from the 3/20 PRP Low to the 3/26 PRP high.

Overhead resistance (see today’s chart) lies in the gap from 812-813 and then again from 820-822 and 826-827. On the downside support remains as outlined yesterday.

My Elliott roadmap continues to have the view that we get a new low (below 666) before a potentially large multi-month rally can unfold in equities. As yesterday ended both the month and the first quarter I can tell you that both charts are showing continued bear trends and are still not exhibiting technical buy signals at this point.

Now We Watch the Character of the Decline Over the Next Few Days

The cash S&P500 formed a downtrending price bar on Monday making last Thursday’s high a fractal, CIT (Change-In-Trend) and Level 1 Price Reaction Point (PRP). As such I have high confidence that it marked the end of the Elliott Wave up from the March 6 low. “IF” this wave was the C-wave in an Expanded Flat from the November 2008 low then we are going to make a new low (below 666) by May 7 before we go back above 833. If the current swing down from last Thursday does not complete by tomorrow (April 1) then we can have even more confidence in this scenario.

The next significant technical support area to watch for is 764-769. This area includes a previous swing low and PRP at 766.20 (March 20); Fibonacci confluence; a Gann target, and the intermediate moving average I like. There is only minor support at 773.

On the flip side, the next short-term upward move (which will most likely be here and gone by the end of this week) must not make a new high. The “I was wrong” point (stop loss if you will) remains at last Thursday’s high of 832.98.

And the First Level of Support Is ....

“If” a move down has begun from last Thursday’s high then it can’t hurt to look at areas of support. Not surprisingly, the first technical area I have identified (792-796) is just above the last swing low of 791.37 on March 25. This support area is based on Fibonacci and Gann. The short moving average I like to use is projected to be in this area today as well.

Breaking the low of 791.37 is the current point that would mark a trend reversal and make last Thursday’s high a CIT. This would also mean it was the end of the Elliott Wave up from the March 6 low. Under our current roadmap a move below 791 would trigger a bearish stance with initial stops (the "I was wrong" point) at 831.