Monday Rally

The market tested the 200 day ma and in the process invalidated the W1 intermediate count I had. The structure now favors the point E of an triangle, which means the 5th minor wave should now start. I was really tempted to add to longs at the 200 day ma but I decided not to as the debt issue is an unusual circumstance. What I will probably do is load up at the 50 day which stands at 1312 and use it as a stop once the TA gets reached. The TA btw is sitting at 1323 so it might take a day or two to get there before a pullback to the 50 day ma. I am glad they managed to agree on something at last!

1296 or 200 day ma?

The market got closer to the 1296 level today and at this point its impossible to tell if it will hold (just like its impossible to tell if politicians can agree on debt and taxes). But like I said yesterday, I'm looking for 1296 or the 200 day MA at 1284 to hold and then rally. Looking at the waves, if 1296 its breached then the count would have these 5 impulsive waves down as part of a C wave or a bearish 3W.. it will all depend on how these levels hold.

I find it interesting that several weeks of negotiation in Washington has yielded nothing. And if the US defaults, a recession and a major market correction will be likely. All because these guys can't agree.. they can't even agree with people in their own party.

Now the Bounce

The market ended up having the bearish leg I had been looking for and it not only tested the TA and the 50 day MA but it broke them on a bearish/heavy volume day. So I make some changed to the labels to reflect the 5 waves today and now I am expecting a bounce in the next few sessions. As long as the market stays above 1296, this is a valid W2 of a W3 of 5 Minor. I've been right on every single wave since mid June so hopefully I'll keep the streak going. Also from the Technical Analysis perspective, there is a potential inverse Head and Shoulders in play that targets 1440. So we should have an answer on the next bullish wave. If it is indeed a W3 we should see it go straight to 1370 after this sell off.

I ended up covering my hedge at 1321 expecting a double ZZ but I covered too early unfortunately. So now I am looking to add margin longs at levels as close to 1296 as possible and use that as my stop or perhaps the 50 day ma which sits at 1310. If 1296 breaks, I'd expect the market to find support at 1287 which would be an automatic margin long for me as it would be about 40 points from the Trend Average (an automatic long on sell offs and shorts on bull rallies).

Double Zig Zag

The market continues its correction and from looking at the charts it seems like it might need one final bearish leg to complete and double ZZ and resume the bullish trend. The issue of the debt ceiling might just be what the market needs to propel higher and until that issue is resolved, the market will continue to be in correction as investors are apprehensive about new positions. From the EW perspective, the market needs to correct to 1327 for a proper Fib correction. It has gotten close but maybe one more bearish leg will do to the 50 day MA and rally from there.

More Selling to Come

The market started the correction as I had been anticipating and it looks like there will be more selling tomorrow. The waves are aligned in a bearish 1-2 set up, so we'll see what morning brings. The market is still above the TA so there is nothing bearish as far as trend indicator goes. However, going by wave structure, TA tools, and the fact the government is deadlocked only helps the bearish wave. And as long as 1295 doesn't get breached, we should see a strong bullish wave after this correction is done.

Coming Correction

The S&P rallied further that I anticipated but still within a reasonable range. So I am still expecting a test of the 50 day MA and the TA which are both now exactly at 1323 early next week. If this test proves successful, which I think it will be, then we should see a wave that will challenge of take out 1370 once in for all. In the meantime, it will be interesting to see what happens with the debt ceiling issue. I just read that Boehner walked out of negotiations and that might just set off the correction on Monday.

Have a Great Weekend!

Correction to 50 day ma/TA

The market is almost done with W1 of minor 5 and I am expecting a correction that will test the Trend Average (1319)/50 day MA (1316) in the next couple of sessions. There are some EW analysts who are calling for a sub-1300 low before launching the minor 5 wave but I am personally inclined to think that we are already in it. I shorted (to hedge) at 1328 and will be covering and going long on margin when these trend lines get tested. The debt ceiling agreement might be the catalyst for a huge rally.. we'll see.