Friday, June 22, 2012

Digestion? More like Indigestion!

So much for an inside day setting up higher prices next week. The market decided to spit in the face of the bulls with a trend day down bounces normally associated with big rocks. If you tried to play one or more ( I did), you watched several potential bottoms morph into bear flags and then pukes. the VIX spiked back up over 20, giving rise to the thought that the closes below 20 were just a fake out. The VIX weekly chart still has its uptrend intact.

There is also some ominous clouds on the horizon in the SPY coming from the Elliott chart. First there was a clear 5 wave down move (impulse wave) follwed by what now clearly looks like 3 waves up. And with yesterday’s trend down day, it is possible we are entering a three of a three, usually the most violent of all waves.

Essentially you can see the 1st wave down labeled 1(while5 waves down on the daily chrt in this wave are not clear, they can be seen on smaller time frames), then a three wave rally A-B-C. Then another larger 5 waves down (either wave 3 of 5, or another 1 of a much larger pattern) followed by another 2 wave rally, A-B-C, and then yesterday steep decline. Frankly it doesn't look good. Of course it can be negated by a print above Tuesdays high at 136.25, doesn't look likely. Targets? Well for 5 waves to be complete, 6/4's low of 127.14 must be taken out. From there using Fibonacci, Wave 3 or 5 would equal 1 or 3 at 121.73, ouch.... and a 161% extension gives us 112.76. Let’s hope not.
While it is very frustrating jumping from bearish to bullish or neutral and back to bearish again, one MUST trade what one sees as opposed to what one thinks. Otherwise you get opinionated and get run over. That said, the trend now looks down. Market internals were wretched yesterday, not much was spared.
ES is currently up 5.00 and this is most likely an opportunity to lighten up and / or short. Trend is down until it isn't. From an Elliott count, wave 3 to the downside is in play unless we take out the recent highs, and new lows are expected, possibly a lot lower. No net short puts!

No comments:

Post a Comment