Weekend update…

I got out of my shorts Friday at about 1043 and went long with some in the money October calls. I'm now looking at 2 (or 3) possible scenarios...

One is that this current move was wave 4 down from the 1080 high (with Wave 1 up starting at 978 low), and that we are getting ready for wave 5 up (to the 1108 gap fill area) to start on Monday. Here is the breakdown...

Primary 2 up is of course from the 666 low to now, and currently undetermined if it has peaked or not?

Inside P2 we have...

Wave A up - 666 to 956 = 290 points
Wave B down - 956 to 869 = 87 points
Wave C up - 869 to present (if ended at 1080, then that's 211 points)

Inside Wave C of P2 we have...

Wave A/1 up - 869 to 1018 = 149 points
Wave B/2 down - 1018 to 978 = 40 points
Wave C/3 up - 978 to present (if 1080, then 102 points)

Inside of that Wave C/3 of larger Wave C (from 869) of P2 we have...

Wave 1 up - 978 to 1039 = 61 points
Wave 2 down - 1039 to 992 = 47 points
Wave 3 up - 992 to 1080 = 88 points
Wave 4 down - 1080 to 1041 = 39 points
Wave 5 up - 1041 plus 61 points equals 1102.

That 1100 mark is the key for the bulls. The mark is somewhere between 1100 and 1108, depending on what time scale you are looking at, and whether or not you're only counting the closing price or the intra-day peak.

Inside of this 5th wave up I'm thinking we could have an ABC to that 1100 mark, or even a 5 wave move. Regardless of the wave pattern, I'll be looking to short once that 1100-1108 area is hit.

The other scenario is that 1080 was the P2 peak and this was Wave 1 down in a larger Wave A/1 that should find a bounce around 900 or so. If that's the case, then we should still be up the first couple of days next week to form a Wave 2 up. Resistance is at 1053 and 1065, and should provide another chance to go short.

I believe that if it stalls at that area for a day or so, like having a doji, then it's not a Wave 2 up (with 1080 being the P2 high), but instead it's the first part of the final Wave 5 up to 1100 area. If that 1053/65 isn't sold hard, then it's not the starting point of a Wave 3 down from the 1080 peak, but instead a consolidation point for a big Wave C/3? up to 1100 area. BE CAREFUL AT THIS POINT!

I'll be monitoring the volume closely. If there is heavy volume at 1053/65, and it holds, then we are heading to 1100. Heavy volume should push it down hard into a Wave 3 down, making 1080 the P2 top. The Bulls have too keep it from collapsing back down from 1053/65 to take out the 1040 level and head on south to next support at 1020, then 1000.

I think that if they lose at 1053/65, and don't hold that area to close with a doji for one or two days, (which would then be viewed as consolidation, before a big up move), then Wave 3 down should take out 1040 easily and head to 1020, and then 1000, before a bounce back up for Wave 4 up.

Personally, I don't see 1080 as the P2 top. I think they will push this up Monday and Tuesday (remember.... Monday is a Jewish holiday, and there's no economic news coming out). That equals light volume - aka, easy to push up, and then consolidate on Wednesday and maybe Thursday too? They can give back a little bit from say the 1053 or 1065 push up, but they can't let it break 1040 or they will not regain control and 1080 will be the P2 top.

So, I'm thinking that they will push up to 1065 area, drop back to 1053 area, and then go for the big push to try and take 1080 again. They should be slapped back down there, which could let them fall back to 1065 for support. Then lunge one more time to break 1080 and head to 1100 area. This could be quite choppy as the bulls and bears battle it out. I'm not so concerned over wave counts, but more focused on the support and resistance levels.

There is nothing between 1080 and 1108. If they break 1080... they are going to 1100-1108 area! It's just that simple.

Friday's volume was a little over 204 million shares traded, which is still a little light, as the average should be 225-250 area. But, that's still a lot more then the 150-170 mark that we have seen on many Friday's in the past.

What concerns me the most, (and makes me think that we will go higher first), is that we had some good volume during the last 3 down days, (and... we had a lot of bad news this week), yet we only dropped 39 points. It's seem quite controlled on the way down. I didn't see it, or feel like anyone was in a panic state. That leads me to believe that those crack head bulls are still in control. (And you know that Obama, Timmy, and/or Bennie will spin anything out of the G20 meeting as positive next week).

I also noticed that when the dollar sank in the morning on Friday the markets didn't rally. It seems that the market and the dollar are starting to part ways. As you know... in the past, when the dollar fell the market rallied, and when the dollar rose the market fell.

They have been like opposite sides of a coin for the last several months now. This "de-coupling" between them could be because the market is starting to wake up and realize that a falling dollar is NOT good for the market as they previously thought.

And here's another reason to be up early next week. Let's not forget that a lot of bears went short during those 3 down days. That's a lot of squeezing for the bulls to do. Light volume on Monday... Crooked Goldman Sachs with our money to spend... Can you say Bear Squeeze?

That 1053/65 resistance could be cut through on the first try up? It's hard to tell how many bears are in the market short right now. If they do squeeze up, and go through, then the same plan applies as above... just with different numbers. The 1080 area still should stop them on a second hit. It could go up to 1080 first, then back down to 1065 for support and off to 1100 on the next wave up?

Focus on the volume! If volume is high, and the market is holding it's ground (and NOT tanking), then the bears are losing the battle and the market will go higher. Those doji days are bullish, not bearish... at least until we reach the final top around 1100-1108.

With that said... some have 1120 as a high, and others have 1200. Nobody knows for sure... but some of the best traders on floor of the S&P are calling for gap fill, then down to 900... so I'm leaning toward that as being the plan of action. Mr. TopStep knows a lot more then me, and if he talks... I'm listening! (Isn't that an old EF Hutton commercial? LOL!)

Since both scenario's call for the market to go up early next week, I'm comfortable long right now. But, I'll be looking to get out of my longs in one to three days. I'm looking for resistance levels to be hit and stalled out on, and I'm looking for volume. Then, at the point that the two scenario's take a different path, I'll have to make that tough choice to go long or short. (Most likely long until the 1100 area it hit). I'll be flipping a coin probably! LOL!

One last thing...

A third scenario that could happen is that we continue down to the 1020 support area before a bounce back up. However, low volume, (which I expect on Monday), is usually positive for the bulls as they can easily push the tape higher. It is a possible scenario, but I just have to go with the odds... which are point up in 2 scenarios and down in 1.

Good Luck and may the evil force (aka - the darkside) be with you!

Red

Author: Red