Monday, February 22, 2010

Just Waiting For Wave (C) To Show Up

There's not much to add today except that it was a down day. I was expecting a bit more, but we have to take what we get. The longer this drags out, the more we have to be on guard for a surprise follow-through day that confirms the correction is over. While I might believe that wave (C) is imminent, it doesn't matter what I believe. The market action is what matters. The indexes have regained the 50demas, so a solid follow-through would have to be respected.

There are a few options before us: 1) wave (C) down may begin immediately, 2) wave (B) up may retest the high and morph into a flat or expanded flat, 3) wave (B) may extend out in time into a double zigzag or triangle, or 4) the correction may be over and the market will move higher from here after a brief pullback. If option 1 prevails, then the selling should begin tomorrow and intensify into the end of the week. If options 2 or 3 are seen, then wave (C) down may not occur until the later part of March while we trade in a range. The triangle option would mean that the downside would be limited. If option 4 occurs, then I would expect it to occur by early next week.

For now, I think the current rally is a bull trap and that we will see wave (C) down whether it is this week or in March, but I will be prepared to go the other way if conditions warrant.

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