Although markets have reversed off of this morning's low on higher volume, it is still not certain that a short term rally is underway. The Qs need to move above 44.56 and the SP500 needs to move above 1070.66, the wave i lows, to confirm that this morning's low completed an impulse down from the August 18 high. The intraday pattern is unclear as the action yesterday and this morning could be a small degree ending diagonal or it could be wave [b] of a wave iv flat correction. If the latter, then we may see another sharp selloff this afternoon or Monday to complete the impulse.
The current dilemna for the bears is that the two legs of the decline from August 9 are equal in length, which makes it unlikely that the decline from August 18 is a 3rd wave. The rule is that 3rd waves cannot be the shortest wave, but usually they are longer than the 1st wave in stocks and stock indexes.
Unless we see another new low in the decline soon, this raises two possibilities to the forefront: 1) the market is now rising in wave [y] up as previously proposed for wave B up, or 2) the market is now in wave [e] up of a larger B wave triangle. In the former case, the August 9 high will be exceeded. In the latter, it will not. But in both cases, new correction lows will be seen after a 3 wave rally. Thus, going long here is probably not the best of ideas.
The most bearish outcome would be a (i) (ii) i ii setup in which the current rally does not exceed the August 18 high. In this case, after a brief rally, the market should collapse in a 3rd of a 3rd wave decline to well below the July 1 low.
There really are no likely bullish outcomes on the table at the moment. My strategy will be to continue to look for shorting opportunities and to add to existing short positions as the opportunity arises.