That sound you hear is a collective sigh of relief across the U.S. as we awoke to find the futures slightly negative and we’ve watched a drift into green territory as we inch toward the opening. After the way the markets closed on Friday, the trumpeting of the breach of the 200 day MA throughout the blogosphere (along with its expected waterfall decline). Add in Cramer’s “Markets in Turmoil” special last night and that was a recipe for a sleepless night if you had long positions. But futures bottomed out quickly last at -12.00 and are still rallying as I write this at 1278 +4.00. So what does this mean for today? Absolutely nothing! By 10:00AM, we could easily begin that waterfall and slice through the O/N lows or be + 10.00 or more. Cramer’s special and the gloom or fear that abounds makes me want to be bullish but there are glaring reasons not to be. Looking at SPY from an Elliott wave standpoint, we now have 5 waves down for either a failed 5th wave high at 141.66 or it is possible 141.66 was a wave 2 high and we are in wave 3 of 3. Neither is good as both imply lower prices ahead. Potential stopping points are 126.47 where wave 5 down equals .618 of wave 3, 121.8 where wave 5 equals wave 3, and 114.25 where wave 5 equals 1.618 of wave 3. Also at 124.81 the entire decline from 4/2/12 equals .50 of the rally from the Oct low to the April highs, 120.72 equals .618 retrace of that rally. So the projections are all over the place.
On top of that VIX seems to be rising nicely in accord with my Vix & Viagra post http://thetradersjacket.blogspot.com/2012/05/vix-and-viagra.html . It has broken out above it's Bollinger Band and looks higher A VIX rise = to the average of previous rises since 2008 gives us 36.33, 10 point higher than current. Fridays decline, though scary was seemed quite orderly. It just didn’t have the feel of a puke. Maybe we don’t need one, though Bonds make me feel like we do.
As a last thought, a coordinated intervention realistically could be announced at any moment, the current decline does have 5 full waves down and has fulfilled minimal Elliott requirements. A rally could rip the faces off bears that have too much conviction in their views. My advice: should a waterfall start, don’t buy as price hits any level, wait for some buying to show up, and the same thing goes if we get any sharp rally, let a pivot form on a smaller time frame before you put your cash at risk. And finally, whatever you do, DO NOT SNOWBALL, in either direction. Place your trade, place your stops and adhere to them. Adding to a loser, especially when the macro is what it is can be a death wish. Trade well, trade your plan.