Be careful out there...

I coudn't post yesterday as i had problems accessing the blog.

However, i posted this at www.traders-talk.com forum yesterday

http://www.traders-talk.com/mb2/index.php?showtopic=49601

Based on channelling, SPX cash 1286-88 seems like a strong magnet right now. Even time wise, the correction is not complete. My guess is either we go up straight and test that area today noon or decline in a wave B and do the wave C up tommorow to satisfy the time requirement.

Now the first part worked out fine. My opinion has not changed even given the ugly close today. I think we rally in a wave C to 1286-88 area tommorow and then continue with the downtrend.


This forecast worked in a picture perfect way. I went long at ES 1283 and got out around the 1294 level. I was looking to go short in a big way around the ES 1296 level. But as we rallied to the 1295 area on ES, the hourly oscillators were barely overbought, which suggested more upside. More importantly DOW gave a daily buy signal at that point, while the SPX and NDX daily remained on a daily sell. Something was clearly wrong and i didn't go short. Then we had a scary decline and an equally sharp rally thereafter.

Strictly from a technical perspective, if we were to put in a solid intermediate bottom, we need to decline here to retest the 3/08/06 lows, which would create a nice divergent bottom. From all the technical evidence i have at this point, the bottom is not in. I think the internals have put in a bottom as of yesterday. The strong breadth we had today can be treated as accumulation and a snapback action towards the zero line. So we still need to see the price bottom, which always follows the internal bottom. Going by this strict intrepretation of the current scenario, we should see a scary decline next week to test the price lows of 3/8. That would create a nice "W" bottom both on the price momentum and the MCOs, which would give a solid fondation for further rally.

On the other hand DOW issued a daily buy signal today, suggesting a "V" bottom might be in place. I don't trust the DOW and NDX daily signals for i think SPX is the proxy for the U.S markets. SPX and NDX remains on a solid sell. Remember this market is all about tactical trading. My above mentioned technical scenario may or may not work, as the whole world knows how to pick a divergent bottom, creating efficient markets, if such a scenario were to pan out. So from a tactical trading perspective, we are at the right juncture to mount an assault on the bears. There are tons of bears out there with huge stops above the SPX 1300 level. And SPX is just 15 points shy of the 1300 level. So if we were to rally and take out the 1300 level, there should some massive short covering. Also NDX is perched just below the declining tops line from 3/3/06. If we were to gap up above that trendline on Monday, a lot of trapped NDX bears could get scorched badly.


So technically speaking no price bottom yet, but from a tactical viewpoint, we might have seen it. Bottomline i will still look for shorts on SPX next week, but will change my opinion in a heart beat, if the price action proves me wrong and i get a daily buy on SPX.

Be nimble ! Have a good weekend...