Make Or Break Time

(Click To Enlarge)

The stock indexes continued higher today after yesterday's follow-through day, so do this mean the rally will continue? I still think the balance of risk is to the downside. ( I apologize for the poor image quality of the above chart. One of my goals for 2009 is to provide better charts.) The above chart shows an interesting interpretation that has only become evident today. It is possible that the Dow complete Minor wave 5 of Intermediate wave (3) on 10/27 as a truncated 5th wave and has been tracing out a running triangle for wave (4) since then. At this point, we would be in wave E or wave b of D. We can estimate wave (5) to complete around 6420 if this view is correct.

We are at a make or break point with regard to the near term bearish viewpoint. The indexes should begin to decline fairly soon tomorrow or we are probably in wave C of (4) up to new rally highs around the 50dema. The rally over the last two days seems to be an upward correction with overlapping waves forming a double zigzag. If the Dow moves above 8680 and the Qs move above 26.84 tomorrow, then in all likelihood wave C up is underway.

Another reason to suspect that won't be the case is that the rally from the early afternoon low appears to clearly be 3 waves with an intervening b wave triangle, which again supports the view that this is an upward correction.

The bottom line is that we will know tomorrow if wave C up to the 50dema is underway, or if we are headed to new lows. If it is wave C, I will be exiting my index short positions and waiting for a new opportunity.

I added two new stock long positions today. QCOR broke out to new highs today. RIMM recovered from its early morning breakdown. However, ADBE and DTV are down after hours. This is certainly a bifurcated market.