Sunday, July 25, 2010

A Look At The Big Picture

I thought I would step back and take a look at the big picture with the SP500 today. In previous posts on this chart, I have pointed out what I call the Decadal Pivot (DP), which is the midpoint of the range of the previous decade, 2000 to 2009. It is interesting to see how the market traded below for a time and then above for a time the 1160.75 level in 2004 and 2005.

In the current decade we have traded up to and slightly above the DP not quite making it to the previous congestion range zone high. We are probably working on a new congestion range zone.

At the moment it looks improbable that the SP500 will make it back through the DP during the current rally. 1160.75 would be a 71.7% retracement of the April to July decline. The 61.8% retracement is exactly 1140. The January high was 1150.45. Given the generally lackluster breadth of the current rally, the poor response to earnings announcements and the weak performance of market leaders, it is most likely that we are in a B wave up from the July 1 low. A measured move up from this week's low projects to 1145.43, so we see there are a number of resistance levels with confluence in this zone. Thus, we see that the zone of 1140 to 1160.75 will probably be where the market tops out. The sooner it gets to 1140, the more likely it will make it to 1160. The time window based on cycles and seasonals for a top is the end of August. So, the likelihood of reaching 1160 will depend on getting to 1135 to 1140 by mid August.

If we assume for a moment that the SP500 will make it to 1160.75, we can also project a measured move target for wave C down to 951.86, which corresponds to support at the June 2009 high, the December 2002 high and the trendline from the October 2007 high. This represents the most likely downside target for a fall selloff, and is only about 60 points or 6% below the July 2010 low.

Now, the question is whether we will get there slowly or quickly. Truly there is no way to know, but I suspect it may be quickly. If we can get up to the 1160 level, that would be close enough to the April high to allow for a flat correction, and wave C down could happen in as little as month as a sharp impulse wave, further exciting the elliott wave crowd who are looking for the mythical primary wave 3 down to really get going. On the other hand, a modest rise would lend itself to a double zigzag correction that might last well into November. Either way I think we will know it when we see it.

I have changed the name of the System Tracker to the Strategy Tracker and updated it to reflect the lastest signals. The fact is that a Trading System requires risk management, position sizing and money management, which are not described. The Tracker shows several intermediate term trading systems, most of which have performed quite well over the last three years. I will be adding a new one to the list in the near future. It is quite simple and has performed very well recently.

If you like my work, please share it and mention this site as you communicate with other traders. It is my hope that the lessons that I have learned will be a benefit to others who desire success as traders.

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