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Monday, August 17, 2009

The Bigger Picture

There are a few obvious areas that I think many traders are looking at:

1) The lower up-sloping trendline from the 666 low that connects the 869 low.
2) Major support at the 943-956 area.
3) The giant bear wedge.
4) "Contrarians" are definitely looking at sentiment peaks.

So far the total volume evidence points toward this being a B wave pullback. Less total volume on decline = pullback. Could P2 have topped? Of course it could have! We don't have any firm evidence though that it did.

The B wave could hit both support and the trendline at the same time. I'd give it some more time. As explained today, the form it would take would likely be a "double three". Why? Why not a big bear wave to lower 900's or so?

I tend to think that in order for this to be a B wave pullback, in the larger triple Intermediate wave zigzag to P2 peak, prices must maintain 950 area support. If major support is lost at the mid 900's, then I would argue something else is going on other than a B wave pullback. B waves typically pullback 38-50%. 38% is 961. 50% is 943. The higher Fib of 62%, in this case, I think would be severely damaging to the rally and lose major support. If prices went that far, its a sure bet, that they would break the up-sloping trendline for good.

I have one trendline on the chart in black that I have been eyeing for quite some time. Its what I think is a P2 killer trendline. I would be sorely disappoint if P2 did not try and challenge it.

If P2 is to have one more peak, I tend to think that time is limited. If this is a B wave pullback, then it should be over within a week or so from now (if its not already). Then a spirited final rally, which would be technically weak, would squeak to a new high on awesomely good news. P2 should end on that good news note.

If everything magically played out like I have laid out above, I would expect daily/weekly negative divergence to occur on just about everything. That would be the final nail in P2's coffin.

Sentiment may or may not make a new peak. Some surveys might.

The VIX may or may not make a new low. It may have bottomed. The dollar may have bottomed. Its not imperative that they finish at a low when the rally finishes at a high. I would rather think any divergences that were to occur would strengthen the evidence that P2 would top. In fact I would relish that divergences would occur in all three areas (dollar, VIX, sentiment) if the market managed one last push to a new peak.

So a final rally in not guaranteed now that we have, finally, evidence of a decline or pullback in prices occurring. But until major support breaks and the major up-sloping rally trendline breaks, we'll give it the benefit of the doubt. But one rally attempt before the Fall sets in and then the long winter, would be nice.

The final rally would be where the public takes the chum-bait.

And a final rally to new peak would create a nice weekly divergence on the RSI and MACD and that would be perfect.

So anyways, that's my general thoughts at the moment. I'm looking for an [x] wave up to start sometime tomorrow. Then another corrective pattern to play out of the next trading days/week or whatever.

P2's time is limited I think. The bear wedge is squeezing and its running out of room.
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