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Saturday, March 21, 2009

A Look at the SPX 1 minute

I have 2 charts I'd like to discuss:
1. SPX 1-minute: This chart appears to be a "double three" playing out. From a 5 or 10 minute chart, it looks like a 5 wave pattern is playing out downwards which would give an indication of a 5-3-5 zig zag correction which would easily interpret to a much farther downside target once the entire pattern would play out. But is it really a 5 wave playing out down? A look at the 1 minute SPX reveals a more complicated structure. The market always likes to fool us. Although on indicators such as McClellan's and the daily $tick suggests a nice correction is in order, one has to wonder, that if this is a trend change, will it correct as far as many seem to think or that I suggested just last night in my Friday night update based on an assumed 5 wave down pattern suggesting a 5-3-5 zig zag that goes much deeper down?
The 60 minute RSI and stochs are on the downside due to the correction already taken place from 803. The popular 15 minute trading chart also shows the RSI on the lower end of the range. The 60 minute chart also has a bullish 50/200 MA crossover that just took place (first time in 2009) on Friday. Does that mean SPX is up and away? No, but it does make you pause if your apt to be very bearish.
A trend change will produce numbers on indicators that will not make sense. We are used to 18 months of viscous Bear, so when we see the usual "topping patterns" we usually assume a nice downleg is in order. But if this is a trendchange, a big downleg would suggest that it is NOT a trend change. Afterall, if the market falls back under 742 in any way, which was the breakdown spot for that last bear waves of the previous downside, why would we assume it will bounce at some magical spot?
I guess what I am saying is the rally is on the edge of a knife. If it is a trendchange, we can expect something different than big downside action perhaps. The 1 minute SPX suggest that what has been playing out since 803 is NOT a 5 wave structure of some sort but actually a double three. And that would imply that the downside target is around 757, not some deeper spot say 734 or 715. This would imply that any head and shoulders that may form will indeed HOLD instead of breaking down. It also implies a correction of LESS than 38% from top as referenced from the 666 low.
I did find a nice reference for something perhaps similar: The 2002 lows. It rallied HARD before it ever retraced 38%. That is my second chart that I have provided. Although that is a nice comparison, there is a big difference: it is much more dangerous fundamentally in 2009 than in 2002. After all the SPX, collectively had NEGATIVE earnings in the first quarter. Also the financial system is on the verge of self destruction and the sheer amount of government intervention tells a story of woe. The drop from Oct 2007 was much more vertical than the drop from March 2000. Its actually a wonder the SPX is still in the 700's if one stops and pauses....
However, the waves always tell the story along with accompanying TA and sentiment indicators. The SPX 1 minute suggest 758 is in order, than after that, the market will determine. There is such a thing as a "triple three" corrective so lower than 757 is certainly capable. And perhaps I am reading this entire chart wrong anyway. But any hardcore Elliott Waver would tend to agree with my interpretation, its a pretty straightforward interpretation nothing too fancy.
As far as complex corrective such as "double threes", it seems the market corrects first in a basic pattern and then finds out it is not enough. So it morphs into more corrective patterns. that's the best way to explain it. The market said "OK, I'm at 803 and I need to correct back a a bit, let me trace out this nice 5-3-5 zig zag to 782. What? That's not enough? OK then , let me just wiggle a few more waves in some kind of triangle fashion and then when that's over, I'll slice it down in another zig zag. There. How's that? Do we have buyers here? Yes? Lets go up! No? ok I can do one more correction or 2 but THAT'S IT BUDDY!"
So ok, now I am surely digressing. I admit, I don't have a clear thought process at the moment on the market. Its not behaving in a predictable way that it was before so yes, I think its a trend change, i.e.-Primary Wave 2. However fundamentally NOTHING has changed much...the country, nay indeed the WORLD, is in a very bad way fundamentally (I never ignore the fundamentals) and that won't change anytime soon it seems. The only way the fundamentals will change is if they tamper with mark-to-market rules (M2M). So in that sense, a high rally Primary wave 2 actually PREDICTS they WILL change M2M. To me, that would have to happen for me to imagine an SPX rally back to 950 or 1000...Hell even 875 seems high....
In the end, I'll be relying on every piece of info we have available and trying to mix it up the best way and weigh all the factors as best I can. Before, it was easy to say " hrmmm, this indicator and that indicator reached "X" level, and the waves traced "this pattern" so a pullback or advance to target "X" amount should easily take place, after all we are missing wave "blah, blah blah". Well, if Primary 1 is over, then Primary 2 will not always be an easy read.
And about that 5(5) EW theory, if a 4th wave traces a triangle (intermediate 4 of Primary 1), then expect a 5 wave "thrust" move to occur out of the end of the triangle. Indeed since the 875 high, we have had a nice 5 wave move with an extended 5th wave. We all called it 3(5) but actually 3(5) contained the whole 5 wave thrust structure to 666 bottom. Those that have been following my blog posts over the last 4 months know that I have spoke of, and tracked the 4th Intermediate wave triangle and pondered on its many times. It does not surprise me that there will not be a 5(5) as I have suggested. the market fooled us I guess is all I can say. Yes the SPX does not look like a "perfect" triangle, but its internal waves behaved like one. And the NASDAQ traced a very nice triangle. The DOW? Well what can I say about 30 stocks and how reliable is that index for EXACT wave structures? That's why I mostly don't track the DOW.
Anyways in the end, for this upcoming week, I'll be looking for a move down to 758 or so on Monday. And then I'll be looking for a large H&S formation to occur (with 803 as the head). And then we'll monitor volume and the neckline for any breakdown potential. If the H&S does not form and any more significant bearish downside action on Monday below 758 occurs suggests that something else is in the works and that my rambling tonight and dissecting of the 1 minute SPX was mostly a waste of time.
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