Thursday, July 1, 2010

Picture Clears Up For SP500

While I believed it to be plausible that wave B up was underway, the market was in no mood to comply with my opinions. However, the picture has cleared up as we now have a very clear 7 wave decline that indicates the correction to date has unfolded as a double zigzag. The take-away from this is that it is a correction and will ultimately lead to higher prices. Either this is the first leg of a still ongoing correction or it is all of the correction and there is no way to know at this time. I suspect the former, which means that we have completed wave (W) of [B] or [X] of the still ongoing cyclical bull market.

The falling volume is not consistent with a developing 3rd wave. We also have a positive divergence developing in the MACD, which should not be ignored. Primary resistance for wave (X) up is the downsloping median line of the correction as well as the 200dema. 3 waves up to this resistance zone may be a selling opportunity. 5 waves up will suggest higher prices. The first leg down of this correction showed a fair degree of complexity. Typically corrections will run from simple to complex or complex to simple. Thus, we would expect the correction to become simpler in form as time progresses. This should make it easier from this point forward to follow the unfolding price pattern. Will it turn into a large flat or double zz? It's hard to say. One possibility that we must keep in the back of our minds is a large triangle. That would lead to contracting price movement over the next several months.

So far the pattern of highs and lows has followed the typical mid-term election year pattern extremely well. If it continues, we should see highs in late July and late August. The only question is whether or not late August is a lower high or a higher high, which means we have up to 8 weeks of waiting before the best shorting opportunity for intermediate term traders. In the mean time I will take a positive divergence MACD buy signal if it occurs.

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