Current Conditions

The market is persistently in an uptrend but now things are starting to run out of steam. According to most EW charts I have seen there is one more leg up that might take us to the 1090-1100 area for the S&P 500 and at that point we would be getting about a 50% retracement from the 17 month downslide to 666. So I am still holding short positions as this is the most logical position for me to take at this point. The upside is limited since the stock run up is due mainly to expectations that the economy will improve rather than actual improvement of corporate earnings (the real driver in stock prices). So let's give it couple of more weeks and then let's see what October brings, which is usually a pretty bad month for stock markets historically.

Update

I am holding on to my short position and I am posting a chart from Dan that gives us an idea of where this wave might end:

http://3.bp.blogspot.com/_TwUS3GyHKsQ/Sqm6A5zsWMI/AAAAAAAABus/TZMRsBXPPqg/s1600-h/spx10.png

The fact remains there hasn't been a proper Fib correction and at this point odds are in favor of a substantial downside vs an upside. Therefore, I am keeping the short position.

Current Count

Looking to cover short and go long at 980. If 976 does not hold then I will re-consider the long position but that area should be a nice finish point for the 5 waves down structure. The I expect a bounce above 1000 on an A leg.

Intraday Movement

Below 1020 the trend changes to the downside. Above 1029.50 we'll probably see 1040.

Hedging

I am currently short again and will go hedged at 1030 if we see it again. Most EW charters are calling this the top of P2 (with some calling it P4) but everyone agrees the next intermediate leg is down. So the hedged position is to play this wave in case it makes it to 1050 but things are starting to look like a top. So we have to see the volume and action this week. Today we made a new high this year but quickly retreated creating a bearish mood. So we'll see if we there is anymore upside left tomorrow.

Testing 1000

As I wrote earlier in the week, we are not testing the 1000 area. I think there might still be a little more upside left, maybe 1005?? but the downtrend continues to be in place until proven otherwise. My target is currently in the 950's. However, if the B wave bottomed at 978 which could be a possibility, we would now be on a C leg that will take out 1018. So I am personally managing my stops accordingly.

On a side note, I think is interesting to look at China's market. The Chinese market went as high as 3500 just a week or so ago but has since tumbled 20% (currently rebounding on an A wave) in a matter of few days. The Chinese market put in it's low back in November and we in the US did so in March. And I get the feeling that if China which has a projected 8% growth this year and which has not seen recession in decades can correct in such sudden manner. We in the US could see something similar very soon, considering there is no confirmation we are out of the recession or that we are on path to any sustainable earnings growth in the long term. If China breaks it's November lows, odds are we will be breaking our March lows as well.

Current Count

We are probably going to see the end of the C and we should get an X wave to back test 1000, possibly in the next couple of days. So it is another chance to load up on a short position now that 992 was broken convincingly.