From an EW perspective there are three clear possibilities right now and one is a major probability.
The most probable scenario has us putting in one more high (or at least testing the high from May 8. The EW count fits great. I have been playing this count successfully in short day trades for about a week. In this scenario we are entering wave 3 up of the last leg. Confirmation of this will be a large gap up open tomorrow or a flat to slightly down open and then a large, quick move up many points tomorrow. FWIW FAS is already up $0.27 in AH so far. This would support the wave 3 tomorrow scenario.
The other two possibilities are that we topped on May 7 AH and will (1) move down in either a shallow correction or a (2) new bear market low. If that is the case we should be in wave 3 of the first move down off of that top. Confirmation would be a quick, and powerful move DOWN tomorrow. If the SPX moves above 920 tomorrow this count would be dead.
I am playing scenario 1, but only 30%. I am confidant this is correct, but it could end at anytime so I am being cautious.
Once this last move up ends we fall significantly but the million dollar question becomes "Has the correction off of 666 completed or has just the first leg of three ended?" We will not know until the prices reveal themselves in the coming months. However I belive that we have not yet seen the top of this move off of 666.
IMO this move will end when EVERYONE thinks the bear market is history. Babyboomers will resume their plans for early retirement and begin riding their Harley's again. Obama will be hailed as the savior (again) for saving us from economic turmoil. I just don't see this yet. Don't get me wrong, I realize that the media has been drumming this beat since about SPX 700, but that is to be expected with a Democrat in the Whitehouse.
Furthermore I believe that to get a P3 drop that is forecast by EW we need another catalyst. Terrible earnings are mostly built in to the current prices. Yes I know we've climbed alot since early March, but we are still down tremendously from the 2007 high. We need an economic catastrophe like the one I laid out in my post last week.
Therefore my longer term forecast is for a pullback beginning as early as Friday back to about 800-825 and then another multi-month rally well into 4 digits. I could see us rally to 1150 before topping. THEN we begin P3 sometime in late 2009 or very early 2010 with a truly horrifying target later in 2010.
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