Thursday, August 4, 2011

Waiting For A Pullback In The Downtrend

The NYMO has reached a very extreme oversold level - deeper than is typical for a bull market pullback.  Previous times when it reached this level the market headed to lower levels after a retracement.  I would expect that to be the case this time.

I keep reading and hearing predictions of a market crash.  I suppose anything is possible, but the current setup just does not lend itself to that outcome regardless of how bleak it looks.  The Qs have multiple levels of support to breach before anything like a crash could commence.  We are nowhere near that situation yet.  What makes it seem so bad is that the Qs are in wave (C) of an expanded flat correction and C waves are usually the strongest as are 3rd waves.  The minimum objective for the Qs is below the June low, but the April 2010 high around 51 could be seen.  If the SP500 appears to be finishing a 5th wave at that time (wave (C) of [X]), I would be a buyer at that support level.

The SP500 has breached support at the April 2010 high and a pullback to that area could setup a shorting opportunity with a target from 1149 to 1191, but most likely somewhere between 1156 and 1175 based on fib extensions of the decline into June and the assuming we are near the end of wave 3 of (C) down.

The damage has been severe to be sure, but it is too soon to call an end to the cyclical bull market.  Once the current selloff comes to an end - probably sometime toward the end of next week - we will be looking to see how sentiment looks and how strongly price is able to recover.  It may take several seeks to put in a buyable bottom.

I will be looking for pullbacks to short over the coming days as lower lows are expected before this selloff runs its course.

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