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Sunday, November 8, 2009

E-minis and Recap

3:38pm: Its clear that 1090 is a target to close above.

3:35pm: It would be helpful to the bears cause if the up volume ratio finished the day under 10-1.

2:59pm: On the other hand, there is a lot of technical damage still. And for instance the RUT barely has moved 55% back up.

2:45pm: Wilshire5000 78.6 retrace hit 11225.52. Up volume ratio is screaming. Its more typical of a kickoff of another ABC formation higher than a wave [ii]. Thats why its always worth paying attention to overly bearish sentiment as Cobra pointed out this weekend.

The battle area is between the purple lines (which actually has yet to be fought on the cash index equivalent). That is where the third wave breakdown area which happens to be high up on the chart, hence a deep retrace. What is interesting is that the futures volume versus cash index is inverse. Low cash index and higher futures versus the last push to a new high. Bears cannot allow the upper purple line to be taken on the cash index and held as support (about 1090) its that simple. Wave 2's always seem to be a battle over the previous breakdown area no matter where that resides (hence P2 is battling in the breakdown area of 2008's P1 down). Re-conquering the previous wave down's breakdown area and holding as support is a requirement for the rally to continue. Yes that seems obvious in retrospect, but that is the nature of every wave 2 either bull or bear.

The key of course is to reasonably estimate if your in a wave 2 to begin with. And all indications of last week point to that interpretation. Wave theory is certainly not perfect, but at least it gives us a mental handle on what may be occurring. Why is this important? Because we need to estimate if a devastating wave 3 is coming next and try and prepare for it.

How else do you get it over resistance? Goose them futures of course!
Not an unexpected move. I'll update in the morning.

Recap: I know I threw a lot at you this weekend but allow me to recap some thoughts and maybe add a few:

1. I firmly believe this is a light volume Wilshire5000 Minute [ii] rally. However as I showed, these first wave 2's back up can retrace deep and have averaged around 70%. So there is room to run higher and still be the "norm".

2. The Dow may or may not make a new intraday and/or closing high. It should be welcomed by the bears as most DOW theorists have DOW theory in a "bullish" alignment at the moment. This may be just as important as the market making a violent move down to close under the 20 month MA on the last trading day of October. That was a bear friendly move and you have to think a new DOW high is a bear-friendly move because they won't match it with the transports.

3. The DOW's wave count could be a Leading diagonal down as long as no new intraday high is established. However there is a window to establish a convenient new closing high without breaking intraday.

4. Bearish sentiment went up harshly on Minute [i]. A new DOW high would help alleviate some of that. See Cobra's Market View via link on my blogroll.

5. Financials may be due for a pop as technicals and wave patterns suggest they might. This is also based on the lagging sectors for the past week will probably make up the most ground and the hot sectors will cool off. They are pushing on whatever and wherever to make this thing go up but I think its ultimately doomed. And what have they done the whole P2 rally? Sector rotation of course and why would they stop now?

(Don't let my pretty pink charts shake anyone out of any solid positions - I am just expressing my opinion which has been known to go way off base - but I am trying to get better. Due diligence required of course!)

6. Remember, not all indexes top at the same time. Some top early (RUT) some top on the first Minute [ii] back up. This is exactly what the NASDAQ did in Nov 2007. It topped while the SPX and DOW were in Minute [ii]'s. Think GOLD right now and possibly DOW. The NAZ and SPX shouldn't be making new highs I wouldn't expect.

7. McClellans Oscillator is still under zero, -13. Research has shown its usually at least at zero or above prior to a Minute [iii] off a significant top. A nice up Monday would rectify this finally.

8. There exists a inverse H&S target at SPX 1090.

9. If things look hairy, check out the Wilshire chart. 5000 stocks tends to settle down "hot" noise that can confuse a waver. The Wilshire has been known to retrace as much as 73% on these Minute [ii]'s. So far it's high price was about .564. There is room to run.

10. Looking at my intraday chart, I will be counting 5 up from Friday afternoon's wave [E] low (if that's what it is) to get a better understanding of things.

And if none of this comes to pass - because it is way early - then I am sorry I wasted your time :)

G'nite and good luck this week!
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