The chart above is a weekly SPX chart with Fibonacci retracement levels applied. With the market rally of the past few days, prices have now retraced a Fibonacci 38% of the previous 17 month decline.
This observation along with the most bullish reading in sentiment among S&P traders (88%) since the beginning of the steep decline in October of 2007 convinced Robert Prechter to send out his monthly Elliott Wave Theorist a week and a half early today. After standing aside since covering his Short position on February 27th, 10 days before the absolute bottom of the decline, he is going back in Short.
Does this mean we are there, at the end of the summer rally and at the beginning of a merciless decline in the market?
As Prechter points out, prices are only at the minimum levels for a normal retracement and could go higher. But he figures it will be easier to get Short early, then get Short late. He also cautions that "getting paid" may be problematic in a Wave 3 down. That is to say that,
"....when banks go under and brokers' computers get overwhelmed with orders, as they will, formerly reliable presumptions about getting paid will no longer be warranted."It's worth subscribing to Prechter's newsletter, just to read the gory details:
NEW ELLIOTT WAVE THEORIST | Due to specific markets entering critical ranges, Robert Prechter has issued his August 2009 Elliott Wave Theorist a week and a half early. A brand-new issue of The Elliott Wave Financial Forecast was just released Friday. With U.S. markets potentially poised for major moves, this is a perfect time to subscribe risk-free to our two most popular U.S. market letters. Subscribe now, and you'll get the 7 latest issues for just $29 total.You can click on any of the Elliott Wave International banner ads to the right or on the bottom of this page to get taken directly to their subscription site.
Remember, this is a game of probabilities and for weeks now, the probabilities have been building for the beginning of the next leg down. These probabilities may very well be hitting critical mass this week.