Sunday, August 02, 2009

Primary degree wave A bottom confirmed

I was on vacation last week and could not post any updates. The breakout above SPX 956 last week got the weekly uptrending and has now confirmed that a primary degree wave A of this bear market ended in March 2009. We are now in a primary degree wave B of this bear market. Wave B should typically consume 1-2 times the time taken by wave A, which means we are looking at a market top to occur sometime in the fall of 2010. It's hard to project the top for this wave B until we get a large mullti-week correction, once the first leg of the wave B concludes. Preliminary guestimates would be in the range of SPX 1150-1200 for the ultimate wave B top.

Again guessing the wave B pattern is a futile affair as it can take many forms. But looking at how it evolves, some educated guesses can be made. If we move breathlessly to the 1150-1200 region without meaningful pullbacks on the weekly charts, then it is likely that the wave B would take the form of a triangle. In that event, since the price targets are met in a short amount of time, the rest of the time will be spent meandering sideways. On the other hand if we get a large sideways-to-down move from the SPX 1000-1050 area, then wave B should take the form of a FLAT correction. We'll cross the bridge when we come to it. I have marked both the speculative scenarios in the chart.

I think for the intermediate term bearish traders, it's going to be a frustrating market for a while. And for the investors, many of years of subpar returns. Given that the VIX is now in the 25 area, and lack of panic in the markets, it will be a purely technicals driven market. Great environment for ST trading - The boyz are back in the town !

Good luck trading !