Monday, February 02, 2009

Rally time?

The market could rally tomorrow, emphasis on the could, but it is doubtful that it will amount to much before turning lower, much lower.


S&P Sixty-minute chart



This 60-minute chart of the SPX shows a clear five-wave pattern lower, which is probably just a part of an initial down wave that ultimately will carry the market to new 52 week lows. I placed some horizontal lines on this chart that represent Fibonacci retracements of the entire move down from January 28th, following the completion of circled Wave 4. The SPX low print Monday was 812.87, which is down from 877.86, the Wave 4 High. That decline should now see a counter-trend rally of between 38 - 62%. The most likely target is 50%, or 845.42.

Once the counter-trend rally is complete, we should see another sharp decline to well below 825. It is this next decline, which would be a third wave, that will light up the air waves with pessimism and despair. From that psychology of doom, finally, a tradable rally should emerge.


For traders, the big money maker will be that next decline, which could start at any time, as there is no law that says the retracement has to be a minimum of 38%, nor a maximum of 62%.

Knowing in advance that a rally could occur to the levels indicated on the chart should serve as a guide, both as to what is possible in the next day or two and more importantly, what to expect thereafter.


Disclaimer


This is all my own conjecture, opinion and modeling. It should not be construed as trading advice, nor as evidence of rational thought processes, nor of any logical sequence of premises based upon empirical observations that might lead to any hypothesis of predictive value.


En español


Todo esto es mi propia conjetura, de opinión y de modelado. Que no debe ser interpretado como asesoramiento comercial, ni como prueba de los procesos de pensamiento racional, ni de cualquier secuencia lógica de los locales sobre la base de observaciones empíricas que pudieran conducir a cualquier hipótesis de valor predictivo.



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10 comments:

Anonymous said...

Whaddayaknow! Finally a post I appreciate!!

Anonymous said...

Maybe it could rally based on NNVCs fundamentals or technicals or past performance!

Conrad

Anonymous said...

Allan,

Love the Spanish translation of your caveat, really brings out the 'smart ass' personification of your blog! :) Shows your still somewhat-human.

Your 61 & 38 Fibonacci retractments are pretty clear (50s-iffy), though it looks like there's plenty of market resistance at ~820. Are you projecting a specific low range with this upcoming retraction or simply pointing one out? From your chart is looks like anywhere from 810 all the way down to around 650 - that's a broad range, IMHO.

-PSU Eric

Allan said...

Eric: 700-770

Anonymous said...

Allan:

Good morning out west and thank you for the quick response.

-PSU Eric

Anonymous said...

Allan,
I really got hit last week with FAZ and SKF and so can't use them because of the wash sale. Can you - or anyone - suggest your favorite alternative to these. I will go short on ARMHY and PALM maybe today. SGMO also looks good. Thanks for any input...

Allan said...

No reason to complicate trading by worrying about tax issues, but if you can't resist, then use QID or SDS or triple beta TZA and BGZ.

Anonymous said...

Thanks Allan, I did buy SDS recently and I like TZA a lot...I do my own taxes so no worries, just maximizing...

Anonymous said...

Allan,

NNVC investor - thanks for all that you do for us little folks. Been buying FAZ all day and watching SPX like a hawk. You just nailed the call on this rally today. You're right on the nutz! Many thanks....Jim

Michael Lomker said...

We hit the 50% today (depending on what timeframe you're looking at). I believe that we will either peak overnight in Globex or early in Wednesday's session.

Slip sliding into the weekend...