Friday, May 15, 2009
Today's action has produced a perfect sell fractal in the Qs. If the May 13 low of 32.96 is taken out, we will have 5 waves down from the May 6 high, which would likely be wave A of (B) with B and C to follow. If this were to happen, we have to be prepared for two things. One, the correction could extend into the week of the 25th, and two, wave C could be deep. C waves often resolve faster than A waves so the correction could still complete by next Friday, but we could still the Qs as low as 30.48 to 31.63. 31.63 was the January high and should be strong support. It should also be noted that 32.96 is the 3 week low, which is a Marketclub sell signal for the Qs. One that should not be ignored.
I will be tightening stops on all of my index positions and some of my stock long positions. In addition, I will be looking to add to recent short term short positions.
While the possibility of a deeper (B) wave correction was not my highest probable expected outcome, it does appear to be developing in that direction. And as always, price takes precedence over all other considerations. In retrospect, one could argue that it would have been more prudent to take profits a week ago, but as I stated previously, when you have a rare opportunity setup, you need to be willing to give it a chance.
However, consider this. If the Qs correct to 30.48 and wave (C) equals wave (A), the target would be 40.19, which would be another 30%+ move. That is substantial whether it is a bear market rally or not.
I will be exiting short positions as the Qs hit the above fib targets and will be looking to go long for wave (C) up.
Posted by R. Craig Pritchard at 7:10 PM