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Tuesday, June 7, 2011

On many measures we have the most bearish sentiment we have had since the big correction of 2010. Yet in other measures there is certainly more room to travel.

Primary count still favors the triangle count, but one cannot be married to this count.  Its up to the market and we are approaching the "put up or shut up" price range. For a triangle to be in play, prices must hold above a certain level above 1250. The triangle has to "look right", at least from a technical and wave perspective. In short, we are asking the market to maintain prices somewhere in the 1258-1284 range at worst for our [c] wave bottom. Then prices must bounce in a [d] wave up a good bit.

Having figured 1280, or the March 21st candle and gap, would be the next logical "dip buy" support, we are not quite there yet to test this wave count premise.

The top bear count of course has the market topping already at 1370 SPX in Intermediate wave (C) which there is not much in agreement on wave structure (which probably strengthen's the case that it has topped).

Simply put, we are in a third wave down of at least Minuette (pink) degree or Minute.  The subdivisions of the wave three down are not quite clear yet.  In other words, there is no clear subwave "two of three" (and hence a subsequent "third of a third") and wave [i] down is not a clear 5 wave pattern although we can certainly accept it as a leading diagonal triangle structure.

This count implies more downside selling  and we have a Fib target of 1250SPX (1.618 times wave one) which seems to be a consensus of major support and "expected" pullback level for prices in general particularly since the 200 DMA resides close by in price.  This is also where the trendline from the 2009 low approximately resides. So those three things are a powerful magnet perhaps.

Those three markers (trendline, 200DMA and 1250 support) are seen widely by market participants that its almost too obvious.  So one wonders if the market will do something else to surprise to most. A firm hold of 1280 or a smashing crash right through 1250 would be but 2 examples of "something different".

That about says it all.

Some have been mentioning the expanded 3-3-5 flat scenario in which the recent 1370 high is a [b] wave in a big expanded flat in which prices will extend well below 1250 (say 1230ish) to form an expanded flat.

That would place us in the [c] wave and it should be a 5 wave move down accordingly.

I don't favor this count because of my bearish bias and outlook in general. More importantly the Minor 4 expanded flat would be freakishly large pattern in price travel versus Minor wave 2 of (C). I also don't know if the market can rally from 1230ish back to above 1370 in some kind of wave 5 or whatever. Sure it can, but its not something we even need to project or think about at this moment. Lets get a 5 wave pattern down first and then assess the likelihood of new highs. 
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