Friday, June 24, 2011

Reversal Reversed

After yesterday's surge the market sold off today but not in a devastating way.  The SP500 remains above its trendline from the 2009 low, and it looks like a bear trap is being set.  The current action appears to be wave 4 of (C) of [X].  Wave 5 down should break the trendline setting up the bear trap.  This could happen above support at the April and November 2010 highs.

It also seems that bearish sentiment may have peaked at the wave 3 low as the PPO of the equity only put call ratio made an extreme low last week and has since rebounded.  A higher low in the PPO coupled with a lower low in the SP500 would set the stage for an intermediate term low of some importance.

There are a lot of forecasts out there as to what is going to happen next.  The truth is that nobody really knows.  We can only make some educated guesses.  However, the fact is that the monthly trend in the stock indexes is still up for the time being though in a pullback, while the weekly charts are in a correction, and the daily charts are in a downtrend.  Thus, I have not taken any new long trades since the end of May.  Of the long trades I entered in May, I was stopped out of half mostly at around breakeven with a trailing stop, and the other half are either slightly ahead or profitable.  I wasn't expecting those trades to last so long, but they are working so I'm not going to fool around with them.  I will be looking for new long trades over the coming week as it looks like an intermediate term low is imminent.

I exited my short crude position today for a gain of 5.35 points after the breakdown from an apparent triangle on June 15.  I am uncertain at the moment about the pattern in oil, but the lack of downside momentum was disconcerting.  That coupled with the IEA announcement that might have sent oil much lower but didn't, it seemed prudent to take profits early.

One possible pattern for oil is an expanded flat upward correction (wave B or 2).  If this is what is happening, then we might see a surge in oil along with the stock market with price heading back above $105 before another decline.