That pesky "W" bottom

I was of the impression the last couple of weeks that SPX was headed to 1450-60, which was a logical IT price target based on the fact that the IT pivot was broken and the NYSE MCO made a new flag. I even posted on traders-talk, the exact day the countertrend rally begun and was expecting a rough target of Sep ES 1536-38 . Once it broke above that level, i was questioning myself.

Now in hindsight, it's clear that SPX put in a "W" bottom. The "W" bottom was tricky to spot, because of the fact that the price did not make lower lows, but ended up as higher lows. We have seen many such lows in this bull market from 2003, which has shown this phenomenon of higher lows. This typically is a product of "Extreme bearishness" at bottom and the system getting clogged so severly with shorts that any countertrend rally ends up in a epic squueze which creates a new leg up. I was one of the first to publish a IT target of 1450-60 when the declione begun. When every newsletter and blogs on the web were abuzz with that number, that was a kiss of death for that target. As i said, i was expecting a restest of the recent lows on SPX till yesterday. But i abandon that view at this point.

One chart says it all. The NYSE MCO made a higher low and price did a retest although that retest ended up as a higher low, which is what threw a curve ball !. The summation has turned up. More important the 5% and 10% components of the MCO are now above the zero line, which keeps the IT uptrend intact again.




As for the VST term, 120-min trend has turned up. Once it turns up, it's very difficult to turn it back down immediately. I say this from my experience and also from examining a large historical data series. So the path of least resistance is now up and will continue so for the next 1-2 weeks at least. The only way the 120-min can be turned down at this point is to have a high velocity selloff of about 25 points on Monday, which i think is very low odds. The market does everyting for a reason. The breakout above Sep ES 1536-38 resistance made it clear that the market was headed much higher. The next logical target is all time highs on the SPX or a double top just below it i.e SPX 1550-55.

Now here's the fun part, which i am sure the Perma bulls will ignore yet again and call for a wave 3 of 3 again. The weekly momentum has turned down, while the daily is up now. Once the daily gets fully overbought here and turns down, it would produce a "Combo Weekly and Daily sell signal". The decline from that signal will be far more powerful and larger than what we witnessed last week.

Bottomline VST, ST, IT bullish. I will post on this blog when the 120-min approaches the sell signal again.