Thursday Market Analysis

I finally had a chance to digest today's market action so far. The SPX hit the target I had been expecting for a few weeks (850-860). Market volume remains light as it has all week.

The structure now looks complete for an EW wave 1 off of the 666 bottom. I now expect a retrace of 50%-62.8% minimum. Running the numbers puts us in the 734-758 range. The momentum indicators are running on the overbought side on most time frames now. We are also going to put in our fifth straight up week in a row. to put this into perspective we only had ONE strecth of five or more down weeks in the entire bear market. June to July of '08 had six straight down weeks.

The price structure on XLF looks even better. A retrace from today's high of $10.10 takes us down to $7.41-7.96.

I studied the market action during the period off of the Nov. 23 low to the high on Jan 6. I looked at this period because the time frame matched the time frame from the March 6 bottom to today (a little over a month), both periods started with a bear market low and ended with a 3 day weekend. You can see this in the following chart:

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3095409&cmd=show[s155003437]&disp=P

Jan 5 and 6 were the first two days after the New Year holiday period. We put in back-to-back doji candles. We also put in a top and went down 280 points in the next two months.

If this scenario were to play out again, then next week Monday and Tuesday will be narrow range trading days and give us a top slightly higher than today. Which would still fit with my expected top in the 850-860 range.

Also note in the chart above that we are close to hitting a major resistence line. I believe we test the line and fail there. Then we pull back to the next resistence line that connects the tops on jan 6 and Feb 13. This line conveniently sits right in the range of the expected pullback (734-758).

Once my new brokerage account is funded I will go heavily short for the expected pullback. I will scale out of shorts as we approach the 750 area and then scale into longs when it is apparent we are near a bottom.

The most difficult time to be short is at the top. The most difficult time to be long is at the bottom. Yet these are the times to be a contrarian. Going short now will pay handsomely in the next few months.