Rally Still Intact

The markets closed above the 11/13 low as well as the 10/24 and 10/27 lows on lighter volume today. The action since last Thursday's high appears corrective and so I am still expecting another upmove. The quality of that move and whether or not it moves above the 11/10 high will determine if I hold on to the index long positions for the 50dema or take profits earlier. Of course, I am presently in the red from from Friday's entry near the close.

Regardless whether this rally makes it to the 50dema or not, the next swing low should be one of intermediate degree, and will be another excellent long opportunity. Positive divergences are beginning to develop on a number of indicators suggesting that a low of significance is forming. The Jan 08 and Mar 08 lows were separated by 33 trading days (fib 34 less 1). We are currently at 26 trading days from the Oct 10 low. It is interesting to note that Nov 26 is 34 trading days from the Oct 10 low, yet another confirmation of the estimated 11/26 cycle low. With that day also falling before the typically bullish Thanksgiving holiday period, I do not want to be short at that time.

If that does turn out to be the intermediate wave (3) low, we can expect 6 to 8 weeks for intermediate wave (4) to play out. However, we can also expect that wave (4) will be nearly as difficult to trade as wave 4 has been, except that the swings should be larger and longer which should make things a little easier. The reason for this is the elliott wave guideline that waves 2 and 4 generally alternate in structure. Wave (2) was a sharp upward correction. Therefore, wave (4) should be a flat or a triangle or some combination thereof.

Of course, this is all predicated on the supposition that this primary degree decline from October 2007 will occur in 5 waves. There is always the possibility that it is completing now as a 3 wave decline which could theoretically lead to an advance to new highs or 3 wave upward correction that would be larger than a 4th wave. Clearly, the advance to new highs is a long shot, but we should always keep all the options on the table until we can rule them out. Until I am proven otherwise, I will be trading this next intermediate wave rally as if it is a 4th wave.

One point I would like to make is that now is the time to be looking for good individual stock trades setting up. Leading stocks are setting up now an may be breaking out ahead of the market lows. Testing the waters over the next week may be a good idea.

Here are some of the stocks I am looking at as candidates on the long side:

QCOR, AMGN, SQNM, ALO, MYGN, VRTX, VRUS, HAE, CHDX, TCBK, EBS, CRI, CPSI, PETS, AXYS, SXE, OCR, ANEN, LMNX, GXDX, CMP, GB, SUSS.