The market put in the wave to challenge the Trend Average as I had been expecting but we now have to see if this is just a completed B/W2 wave with a bearish C/W3 coming as soon as Monday or this is part of a 5 wave impulse. As I mentioned earlier in the week, there is that Inverse Head and Shoulders potential and this pattern targets 1820, which is about the same target I have if I were to count the wave from the 1779 low as a bullish 5 wave count. I think the key to this move will be the 1808-10 resistance level, if the market manages to break that resistance then the IHS is highly likely but if that level holds then I am expecting the 1779 level to be challenged at the very least. As it is, we have the larger Head and Shoulders with a 1743 target and the market bouncing off after 4 days of selling. The ST bearish confirmation signal is now being challenged so if the market is indeed planning to go down, we should see the market close under the TA again and stay underneath it. I 'd be somewhat surprised if the bigger correction ended already but one has to be open minded and ready to act on what the chart is telling us.
I find it almost funny how the taper talk is being used to sell or buy like in the case today. First, it was taper was bad for stocks but somehow today it meant that the economy is recovering so taper doesn't matter anymore! I haven't talked much about QE but basically my take has always been that QE basically saved the economy from a Japan style deflationary recession/depression. I think of QE as a loan to a business that is having a hard time, if the business can regain its footing and be profitable again then the loan did its work. And the US government is no different, it is a business! the difference is the government gets its revenue from Tax payers and it is in the government's best interest to make sure we can be productive again to pay more taxes. And what better way to do that than by giving consumers ridiculously low interest rates so we can buy lots of stuff using essentially free money and lower the cost of corporate debt so profits are maximized (so the gov can tax more of it)! This was the vision of Bernanke and it has worked very well so far and as long as business is good, the markets will keep going up and up! this is not about QE, it is about the economy gaining growth momentum.
Anyway, I sold my longs at 1800 and bought back VXX so I am back to a bearish position. This was a good week to trade for me so we'll see if the streak goes on.
Have a great weekend!
Short Term Trend = Bearish trend being challenged
Medium Term Trend = Bullish
Long Term Trend = Bullish