Topping Process

SPX hit the range of a high confidence top for wave 1 up of this bear rally on Friday. I had been looking for 850-860 since the week before. XLF hit it's high probability top today at $11. I had not posted a target for XLF since I had not applied the EW principles to it. I ran across someone this weekend that had and they had an $11 price target.

Since SPX topped Friday and XLF today early, both appear to be making moves down that are consistent with a new wave down. If this is true we should see some acceleration downward later this afternoon on both SPX and XLF.

The wildcard out there right now is the GS earnings scheduled to be released tomorrow before the market open. It is possible that we trade in a tight range for the rest of today and tomorrow the GS earnings (which are rumored to be atronomical) is the catalyst for the selloff. A "buy the rumor, sell the news" type selloff.

One thing is certain from last Friday's surge. Record profits are now ALREADY PRICED INTO ALL FINANCIALS. When WFC announced their fake record earnings all of the other financials rose along with them near the 30% range (with the expection of C which only rose 10%). So anything short of record profits will take the finnies DOWN. Record profits just keeps them where they are now. This also fits well with the EW forecast.

Now would be an ideal time to open up short positions against the financials, real estate and the SPX. It is a very high reward, low risk setup. I would suggest FAZ, SRS, SDS and SKF. My target for the SPX is in the 725-750 range and my target for XLF is 7.80-8.45 range. If XLF hit this target FAZ would more than triple from it's current price. This wave 2 down should take about 1-2 weeks to play out.