Thursday, July 30, 2009

5th Wave Complete


The case is fairly strong that the indexes completed 5 waves up from the July 8 low today. Note the clear divergence in volume between the wave 3 high and today's high. Also, note the poor close. It is no coincidence that the Nasdaq markets hit psychological round numbers at the highs today: Nasdaq Comp - 2000, Nasdaq 100 QQQQ - 40. Both Gann and Livermore talked about the importance of these round numbers as resistance and support in their writings.

So, where do we go from here? If this is the beginning of a correction of the rally from the July 8 low, I am looking for a bottom around August 14+/-. The correction would most likely test the June highs. The 50% retracement for the Qs is only 1 tick above the June high and an obvious target. The measured move target for the Qs from that level would be around the July 08 low of 43.30, which would be a phenomenal recovery. In fact, if my thesis regarding the rest of this rally is correct, it makes it easy to see how the Qs could better the 2007 highs by June of 2010, but we have a lot of work to do before then.

Today I exited positions in the UWM and USD and will look to re-enter on the pullback. I held my position in the UYG as the action in GE helped support it.

I am holding my long stock positions through this correction as it may prove to be more shallow than expected. Pullbacks are part of the trend and the big gains are had by riding them out.

Even so, I was disappointed by the poor close on MA today. I had gone long from 187.50 on the cup and handle breakout. It looks like it will be in the red before moving higher. I think it will move higher as V has moved up in 5 waves from July 8, and they should move together.

Oil gained back most of its losses from the prior day, so the bullish scenario is back on the table. Meanwhile, gold did not follow. If oil blasts higher from here I may let it go, but if there is a proper pivot off of today's high, I will look to go long.

In my opinion, this is no time to be thinking short. In fact, this is probably the worst time one could try to go short, except for intraday traders. There is little downside to support and a lot of potential upside. That is not to say that there aren't some stocks that are beginning to show intermediate term short setups, but it would be better to wait until the next wave of the rally is underway to see how they will behave.

3 comments:

dave said...

re MA: looks like short covering caused it to open WAY above upper BB's Thurs morning which was unsustainable & then fell of its own weight.

Wonder if financials might outperform during the next two consolidating weeks ??

Regards,
dave

R. Craig Pritchard said...

I think that the financials may consolidate in sideways action while the Nasdaq in particular has a larger correction.

I continue to "personally" despise the financial companies. Their tactics against the retail client, including me on a few occasions recently, are reprehensible. Yet, we must recognize that they have received the lion's share of government aid and are in the best position to profit from it near term.

dave said...

The U.S. should make the necessary reforms that will lessen the possibility of financial institutions being too big to fail because it became heads they win tails we lose.

As long as they can take unwarranted risks, reap the rewards & have the taxpayers backstop them, they will gladly do so.

Regards,
dave