Wednesday, January 20, 2010

Another Shakeout?


Given the selling this morning, I thought I would offer one last possibility with bullish implications before you all get loaded for bear. As frustrating as the month of January has been, the pattern does not yet look bearish. Consider, that after making a new rally high the first week of January, the Qs completed what appears to be a text book flat correction, which is a 3-3-5 wave count. Since the 45.53 bottom, the Qs have moved up in 3 waves, not 5 to match the January high of 46.64. We know this because the intervening low of 45.65 has been violated this morning. Putting these two movements together we have the first two parts of a combination flat correction, waves [w] and [x]. It appears that wave [y] is now underway. While we would expect support to hold at 44.73, the critical level for this interpretation is much farther below at 43.76.

If this count is correct, we should expect a low sometime today followed by another small rally and another low, or a triangle to develop that remains above today's low. On the other hand, if we see a clear 5 wave move down that closes below 44.73, then we would conclude that the top of wave A is in.

You may recall that I indicated that a low today on January 20 might actually be bullish as January 20 has been a consistent turning point in January during the last 10 years. The fact that we are moving down today while possibly in the last stages of a correction of 1 of (5) could be bullish for the rest of January.

I guess the take-away is that it is still too early to conclude that the top of A is in and some restraint on the short side is advised until the picture gets more clear.

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