I must admit that yesterday's action surprised me. I did not expect so much strength. It is clear after yesterday that a trip to new lows in the near term is off the table. We will first make new highs well over 900 and possibly over 1050 before taking a trip back to new lows. The first bear run is over. 666 was the low. This low is an ominus sign for this country.
Today I expect a tight trading range as we digest yesterday's large up move. This will give us a doji candle and set us up for a few red days to end the week. I expect that by the end of the week we hit prices on the SPX under 750. It is common for the first retrace of a mini-bull to cover 50% to 100% of the total move up. I do not expect the 100% retrace as this would put in a double bottom that would be long lasting.
I put the biggest odds at the 50% retrace. This would bring us down to about 750. I am currently 100% short and will begin scaling out of my short positions near 775. I plan to switch to long positions near 750. I will closely watch the momentum indicators on the way down as they will give clues as to how far this retrace drops.
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Where are you coming up with "well over 900" and "possibly over 1050"? Is that EW theory or some kind of math? I don't buy it but we'll see. I believed in 870 when we first started this rally as I emailed everyone about (off previous high trend lines) and now maybe a 20% chance of 918 (as was previous high twice) but nothing above that. ACFA agrees but he does see a highly unlikely possibility of 950 (previous high) but that is it.
ReplyDeleteIt is Elliot Wave Theory. Based on the length of the first wave you can project the length of the overall run. It is not exact of course, but it gives you likely targets.
ReplyDeleteThe actual target for the previous bottom was under 600 which is one of the reasons I was surprised we stopped at 666.
I believe that possibly some extreme financial engineering could cause a wave to end prematurely or extend excessively. We certainly have had some of that recently.