Wednesday, August 11, 2010

S&P 500 ~ Pre-Market Warm-Up 11 August 2010

Edit 10.50 am: Ok, no bounce lol, next level 1090ish. If that breaks.... 1070?

Edit 9.55 am: If 1129 to 1112 was wave i, wave iii = 1,62 * wave i at this level. So, we could bounce here a bit in a fourth wave.

The ES is down huge this morning (1108) and if we stay down here the 1-2-1-2 count is toast and we're likely going lower over the next days.

I already mentioned yesterday that I didn't like what was happening in the morning. The sell off retraced about 80 % of the previous wave - such a big retracement is very unlikely for a second wave within a third wave.

So, unless the ES rallies hard now we have to focus on the alternative counts. The bearish count is that Minor 2 topped and we're in the early stage of the infamous third wave down :-) The target for this count is obviously way below the July low at 1010.

Another possibility is that the top at 1129 was the end of Minor 1 up. A second wave after a leading diagonal often retraces most of the first wave so we should expect at the very least a 50 % retracement of wave 1.

The ES already broke below the lower diagonal trendline and the SPX will follow today if the ES doesn't rally now. The diagonal target is the mid July low - there's also the 62 % of the rally from 1010 to 1129 - so that should be a nice target for Minor wave 2.

Another bearish signal is the following series of numbers:
1126 - 1120 - 1127 -1126 - 1122 - 1128 - 1121
These are the last closing prices of the SPX. In the past year it was usually a topping sign when the market was trading in a narrow range for one to two weeks.

To sum up, unless the market rallies now and breaks that 1130 area I expect lower prices in the next days.