What a wonderful time it is to be a bear! The market just keep on selling into Friday, closing around 1071, surprising even me. I said in last weeks post that I believed we would pierce the 1080 level intraday to trick the bears into believing the level has broken, and pierce did we ever! We went straight through it, and continued on down to a low of 1071.59, which probably had the bears jumping up and down thinking the next level is 1030-1040 area.
Not so fast Mr. Bear (I am one... by the way). Every down move will have a bounce back up from time to time... and that's exactly what I'm looking for next week. A rally back up to at least 1100, or maybe as high as 1120 is overdue, and should occur next week.
Looking back at the chart I posted on last weeks "Weekend Update", I see that it played out fairly well. I was off on the 1080 level holding, but other then that... it's pretty accurate. I believe the breaking of 1080 is a bear trap, as it requires 2 days below the level to confirm the break, which would allow the market to fall to the next level around 1030-1040 (I don't see that happening).
Last Weeks' Chart....
So, looking ahead to Monday, I believe we might have a gap down in the morning, followed by a rally up to close the day positive. If the gap down doesn't occur, then it might just rally up and sell off a little in the evening... but I still expect a positive (or flat) close on Monday. I don't think it will close down big again, like Friday. It should be a flat to up day, for the market to consolidate before a move higher to 1100-1120 by Friday the 5th, (or Monday the 8th at the latest), as the finally high before wave 3 down starts.
To be on the safe side, I will most likely be going short on Friday the 5th, not Monday, as I don't want to miss out if it crashes Monday instead of Tuesday. Since the first larger wave 1 down from 1150 to 1071 is 79 points, wave 3 down should be well over a 100 points before it's finished. Whatever you do... don't go long on anything! No dip buying, only "sell the rips"! You will get killed if you go long in this market once larger wave 3 starts!
This Weeks' Updated Chart...
Once the larger wave 2 up is finished by next Friday (or Monday), you should get short and stay short until options expiration on Friday the 19th. This larger wave 3 is probably going to last until then (or longer). This second cut through of 1080, on the down move from whatever high we reach this Friday, should pierce it quickly and not look back. The first decent bounce level is at 1030, and should cause a pause day to occur, before the selling continues.
Once it breaks... hold on to your hat Nellie, as this is going to be one hell'uva ride down! The 1000 level should also be heavily protected by the bulls, but when it breaks... look out! We're going to 910-920! This is a rare opportunity to make a ton of cash as this thing falls. I will be holding on for dear life, as it's going to be scary as hell!
Best of luck to all of you...