Thursday, June 24, 2010

Pattern Completed - But Will It Hold?

The thing that is most disheartening about today's action is that markets closed near the lows which typically doesn't bode well for Friday, but it isn't negative 100% of the time. Earlier this week I stated that the variables in the stock market equation are price, pattern and time. When the conditions for all three have been satisfied the market has reached a turning point. Today the conditions for all three have been satisfied with respect to the pullback that began on Monday. We have seven waves down from the June 21 low - pattern. The Qs have retraced almost exactly 61.8% of the rally from June 8 to June 21 - price. And we are at a short term cycle low due tomorrow - time. So, either the market rallies almost from the open tomorrow or we have a problem. We could still allow for wave y to subdivide lower, but that would take it below the 61.8% retracement level.

If conditions change for the worse, we will have to change with it. For the moment though the Qs remain above the rising 200dema, the MACD remains above its signal line and the Qs closed not too far below the critical 45.49 to 45.60 level mentioned this morning. All in all I think we could see a reversal tomorrow. I would like to see the market move up from the open tomorrow and carry the positive momentum into Monday to feel comfortable that the above analysis is correct.

If it is correct, we should see the Qs above 48.00 by around July 6. If it's not, at least we will finally know.

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