OK... so what's the plan for next week?  Well, I was off on my Thursday forecast, as I expected a flat day on Friday and Monday.  I guess you can't be right a 100% of time?  The volume was 325 million on the spy.  That means a down day of course... and what did we have?  I huge down day!  Fortunately, I wasn't in any position... short or long.  So, no harm done I guess.  I hope all of you weren't long either.

Anyway, I'm looking at 3 possible scenarios...

Note:  All charts are from "The Chart Patten Trader".  You can find the link to his site, and his charts on my blog list to the right of this website.  Hopefully he doesn't mine me borrowing his chart.  I just added my thoughts in purple, and the black text with yellow background around them.

One.  We continue on down to the 1020 spx support level and bounce back up from there.  We could just bust on through 1020, as this will be a second major hit at that area.  On the first hit of any support area there is about an 80% chance of a bounce.  Each time it is hit the chance of a bounce lowers.  I'm giving the 1020 area about a 70% chance of a bounce on this attempt.

If we bust on through then the next level of support is 998-1000.  There is an 80% chance of a decent bounce there, and I will be looking to go long at that level.  I'm just not sure if we bust through 1020, as it is also the lower trend line of what could be a "head and shoulders" formation forming, with the left side low at 1020 on the first of the October.

Now, if 1020 holds, then I'm still expecting 1073-1076 area to be about the highest possible retracement level on the way back up.  There is a gap from 12th-13th at about 107.60  to 108.35 (spy).  I believe we will get close to it, but not fill it.  Much like the way the market would gap up in the past, and not fill the gaps on any correction down.  I think we will now start a series of gap downs and not fill the gaps on the retracements back up.  The reverse of what happened from the March lows to the current high of 1102 spx.

I remember how many times I waited for a gap fill to happen on any corrective move down in the past, only to be disappointed when the market stopped just shy of it, and started rallying back up.  The markets likes to tease people... especially those that follow technical analysis.  The old trick... bring in close, then snatch it away from them!

Everyone was looking for 1120 to be the top, and it fell just short of it at 1102.  The same may happen on the way back up.  Many will expect 1080 to be hit, and they will be waiting to go short at that level.  All the more reason not to get back up to that point.

Now,  on to Scenario Two...

This one has us rallying on Monday from the current level.  Which, could also run up to the same level around 1073-1076 spx in a few days.  Notice how that area would break the upper downward sloping channel line on the chart above.  How many times have you seen a channel that gets broken out of... only to fall back in it again?  It's another way the market likes to trick you into going long, and then reversing in the other direction.

Notice also that he has marked a 1,2, and 3 on each move down.  If we mark 4 as the 104.35 to 106.86 move, and 5 as the 106.86 to 103.44, then we have a 5 wave move down.  Is it complete?  That's the real question.  Certainly it could just continue down some more to the 1020 area, which I believe would be the end of wave 5.  Or, it could be complete right here, and start a larger wave 2 back up... which wave 1 being the entire move from 110.31 down to 103.44.

I'm not an elliottwave expert, but I do know that the wave 2 back up should be higher then the top of the smaller wave 4 at 106.86.  Since Monday's are usually light volume days, then a rally seems to have the best chance of happening on that day.  Once started, short covering would come in a push the market back up on Tuesday.  Many people will put their stops at the 104.35 low... which could be easily hit if Monday has light volume.

Then, the 106.86 would also have lots of stops there waiting to be taken out my the market makers.  That could be enough to push us up again to just under the 1080 area.  In the past, there would have been a whole lot of bears that shorted the market, and any short covering rally would have really pushed the market much higher.  However, I believe that many bears missed this correction down.  So, that means that there isn't a whole lot of them in the market to "short squeeze".  Hence the reason that I don't really see us reaching the 1080 level... only close to it.

Withthat being said, I do believe that whatever level we retrace back up to, the bears are going to all pile on and drive this market down in a big wave 3 move.  With this scenario, 1020 won't hold but maybe intraday, and the next level down at 998-1000 will be hit.

This means that Monday is a "wildcard" day, as it could complete a smaller 5 wave move down, or it could just continue the 5th wave until 1020 is hit.  So, how do we play this move... that is the big question?

 OK, if scenario one is what happens, then I will wait for 1020 to be hit, and then go long for the move up to at least 1060 again, but I'm expecting that 1073-1076 area.  I'll just be very cautious at 1060, as it could dump again there?  Any long position should only be deep in the money calls, or spreads, as time value and volility will kill your option value on the way up.

Next, if scenario two is in play, then I'll wait for 1073-1076 to be hit and then go short, looking for 1020 as the first support on the way down and then 998-1000.  I will determine which as we get close to that time period.  So, I play the "wait and see" game.  By far, the safest bet is to wait until the retracement back up to just under 1080 is hit, and then go short expecting 998-1000.  The next safest move is to wait until the 998-1000 level is hit and go long.

As I said early, I'm not an expert in elliottwave.  I believe they have their place, but unfortunately they can't accurately predict the next move... only tell you possible moves.  That's why I focus on major support levels, and volume in the market.  Bounces occur at the support levels, which makes the EW ABC and 12345 wave counts.  Anyway, let's move on to one more possible scenario.

Scenario Three.  We concluded a larger wave one down at 104.35.  It would have been an ABC move down.  Next, we completed a larger wave 2 up at 106.86.  And now we are in the first smaller wave inside the larger wave 3.  This larger wave 3 should conclude at the 998-1000 support level.  It could have 5 smaller waves inside it, which could mean a bounce up on Monday for wave 2 (or A), then down to 1020 for wave 3 (0r straight down to 998-1000 for wave C), back up to about 1040 for wave 4, and then down to 998-1000 for wave 5.

I don't really favor this scenario, as it doesn't give the 1020 much chance of a decent bounce.  If scenario 3 happened, then we are in a larger wave 3, and the 1020 would be right in the middle of a smaller wave 3 (or C), inside a larger wave 3.  Two waves 3's would bypass 1020 like it wasn't even there!  I don't see that happening.

We've fell pretty far in the last week and we are due for more of a bounce then just the 105-106 area that scenario 3 presents us.  I really think we will bounce back to just under 108.  Now, the question is... from where?  That's either at 998-1000 (80% chance of good bounce), 1020 (70% chance of good bounce), or from where we currently are now.

That means that we should be looking to go long a 998-1000 for the best chance of success, and long 1020 for a good chance of success.  And, we should be going short just under the 1080 area for another great chance of success.  Waiting for either of those levels to be hit is the hardest thing to do, as the market loves to fake you out.  Patience is learned, not giving!

Red

That sure was a nice start... Let's hope that it continues, (unless you're a bull of course).  Just an update... I sold my short positions for a small profit Friday, and I'm now looking for the next opportunity.  Short or Long, I don't care... but short is my favorite.

So, what will next week bring us?  That's a tough call.  Monday's have had very low volume over the last few months.  Each time that happened the market rallied up.  Once again... light volume equals an "UP" market.  The magic number seems to be around 200 million shares (on the SPY).  Guess how many we traded on Friday?  About 240 million!  And that equals a "Down" day of course.

Above 200 million is almost always a down day and below 200 million is almost always an up day.  Since Mondays' have produced some of the lightest trading days of the year, I'm hesitant to tell you that the selling will continue.  Yes, the morning could continue the selling... but the midday light volume could erase any gains you make.  So, I'd get out early if the selling continues in the morning, and then seems to slow down and go sideways.  That's usually about 11am time frame.

If it continues to go lower then we really do have another down day.  That would be really bad for the market.  If a light day can't get the market back up, then the heavy volume days coming after Monday should produce a hard sell off.  This is one of those things were it's best to wait and see what happens on Monday morning.

There are no earnings or economic news of any importance on Monday.  Couple that with light volume, and the markets should rally back up.  If they don't, and instead have a flat consolation day, then look out... the rest of the week could get ugly!

If I had to choose, I would say that Monday would either be a flat consolation day or an up day.  Maybe back to the 1090 area or so.  I could be wrong, and the market just sell all day long.  If so, then there is support at 1060, and then 1040.  But, my gut tells me that we'll go down a little in the morning and rally back all day on light volume.  Then close basically flat.

If the market rips higher in the morning then I'll be looking to go short at 1090 area.  If it falls in the morning and rallies back throughout the day then I'll wait until the end of the day and look to go short then.  If it continues to fall all day, then I'll sit on the sidelines as I would have missed a nice down move.  I'm not going to chase it down, only to have it hit 1060 and rally back on me.

This are just what I'm looking for on Monday.  Predicting what is going to happen is just guessing at this point.  So, yes... it should continue down, but light volume could stop anymore selling temporarily, and even produce a rally back.  Basically, I'm glad I'm in cash right now.

Red

I'm still looking for the market to go to 1108 spx before any significant correction down.  I believe it will be reached next week by Wednesday.  Option expiration was Friday for most stocks and indexes, but the VIX expiration is actually this coming week, on the 21st... which is Wednesday.  That's one reason that I don't think any major sell-off will occur until after the October month is closed out.

Those market makers don't want lose any money, so they need to keep the vix low until those positions expire worthless.  After that... well that's another story.  November should be a down month, as I expect a nice drop to occur in the next few months.  Why you ask?  Well, it's not all based on Technical Analysis, Elliottwaves, Fib Levels, or Turn Dates.  Nope, it's based on insider information.

You see... TA, EW, Fib's, Astro turn dates and any other method you can think off, hasn't worked too well lately.  In the past... yes, they all worked well.  But today things are different.  Massive printing of money equals massive manipulation of the markets.  So, you can basically throw all that charting out the window.  If the government wants the market to go higher... it will.

With that said, I don't mean to imply that charting is worthless.  Quite the opposite is true.  Charting is still valuable.  But, basing a decision on charts alone is foolish as the government can keep print more money to buy up any dips in the market.  Just when the charts say that the market is ready to crash... BAM!  Here comes the PPT to the rescue.

Going short against the government is suicide, and going long with companies that are borderline bankrupt is also suicide.  So, what do you do?  You wait until the government pulls the money from the market and allows it to behave normally... that's what!  When that happens, it will go down of course, as the economic conditions are still horrible.  If the government would just stay out the market and let it find a true bottom we would get this recession over with quicker and start a real recovery.  But, crooks do what they do best... lie, steal, and cheat to get what they want.

How does that benefit us?  Well, I believe that there are individuals that know what's going on... and most importantly what going to happen next.  I think that one of those people is the guy known as "Mr. TopStep".  He and his group of traders most likely have inside information, which they share with anyone who wants to know.  All you have to do is watch their video's on youtube.

I don't think that you should throw all other methods away and only do what they are doing, but they do know more then the average trader.  And after all, aren't most people who visit and read blogs every day just average traders?  I know I am... how about you?  If you had access to some inside information, from Goldman, JP Morgan, or some other bank "in the know", would you be looking for information on the future market direction on some blog, or would you listen to that source?

If I had that kind of information I wouldn't waste my time reading blogs everyday.  I do so because I feel that many of those posters have better knowledge then me.  Of course figuring out which ones is the really hard trick to do.  With that said, I think that listening to someone who is trading on the floor of the S&P futures is someone who most likely has some inside information, or at least more accurate information then most do.

And, he's willing to share it with anyone who wants it.  Just watch the free video's he posts on youtube.  Again, I want to say that you shouldn't make your decision to buy or sell based solely on what Mr. TopStep says, but you should listen and take that into consideration before making a decision in the market.  About a month ago he said that the market wants to close that gap from October, 2008.  Here's the video...

As you can see, we are almost there.  In the past, when the market gets inside the gap area and pulls back, it almost always trys again until it closes the gap.  Rarely does it go inside the gap window and not close it.  Since the market pulled back Friday, and the gap isn't closed yet (on a daily bias), I believe the market will rally one final time early next week to finally close that gap at 1108 SPX  (110.34 spy).  Here's Mr. TopSteps' latest video...

Then, the market should pull back to the 900 area or so, before another rally up.  Now, you may be asking... will that rally up break the current high, or the future 1108 high (if it makes it there next week)?

That's up the in air at this time.  If the government injects more money, then maybe is the answer.

If they don't, then "Hell NO" is the answer... Dow 4000 here we come!

But for now, let's just focus on the present... and that says that the market is going to close the gap this week and then sell off.  I'm just going to sit and wait until the high is hit, then go short. 

Red

Here we sit at line in the sand. With just a few points away from an extremely important closing price of 107.65 on the spy, it seems that the Bulls might just have the juice left to get there? Monday is Columbus day, and many traders will be gone. Plus, there is NO major economic news on Tuesday either. That means light volume for sure on Monday, and nothing to push the market down on Tuesday.

So, the Bulls must close above 107.65 on Monday, and push on up to that gap fill line at 110 by Tuesday. If that happens, then you can surely expect a lot of selling at that point. On Wednesday JP Morgan will release earnings, then Goldman on Thursday and Bank of America on Friday.

What's all that mean? Heavy volume... that's what! And what has heavy volume brought us in the past? A big sell off! Light volume equals an up market, and heavy volume equals a down market. Will it happen? It depends on whether or not the market believes the funny numbers that the banks are going to report.

Make no mistake about... they will beat estimates. Probably kill estimates! But, the bar is set so low that just about any company can beat estimates. When they changed the accounting rules back in March it made it too simple for banks to fabricate their earnings. So beating estimates is a given now. But, the market wants to see them beat the "whisper numbers"... and that might be tough to do.

It's really a tough call here as the market really wants to close that October 2008 gap at 110 (spy), which would be the Dow over the 10,000 mark. That sure would look great for the 3 stooges (Obama, Geithner, and Bernanke), as it would appear that the recession is officially over! Yeah right, and I'm qualified to be president too. Hey, actually I am qualified... I coached a softball team for many years. That's about equal to "community organizer" right?

Anyway...

The big cycle turn window is in effect now and the market should roll over next week. If it makes a run for 10,000 first, then it had better do it on Monday... as that will be the lightest volume day of the week. However, I don't expect it to happen as too many people expect it... hence it won't happen. I see a flat day Monday with a slight upside bias.

Tuesday through Friday the volume should pick up quite bit. How the market reacts to the banks' fake numbers will be the real question. I'm going out on a limb and I'm going to take another short position on Monday or Tuesday as I expect that to be the top.... where ever it is!

On Friday the TBT rose again, as you can see the 2 day rise in the 5 day chart above. This not good for the market folks. Something is going on that is signaling a change. A plunge is near, that's for sure. If it's from the current level or the gap fill level around 110... I don't know. But, Tuesday through Friday should be down.

Now, keep this in mind...

Once the down moves starts the first level of support is at 1040, then 1020, and finally the 995-1000 area. I give the 995-1000 area an 80% chance of a bounce, so I'd get out of all shorts at that mark. I also expect the fall to be fast, taking out the 1040 level quickly and the 1020 level too. It will fool many bulls that buy those support levels, only to see them fail as the market falls further.

On the other hand, many bears will be fooled too, when the 1000 mark is broken (remember, the support is 995 to 1000), and they will pile on short. They will be squeezed, as a nice bounce from that level occurs. It could go back up to the 1040 area, or possibly higher? But, I think 1040 will provide good resistance, so that would be a safe place to get out of any longs you may take from the 1000 area.

However, let's play it one day at a time. I'm not saying to go short again at 1040, as I don't know how high the bounce will be. Only to take profits there and look for another place to short. We'll cross that road when will get there.

All of this assumes that the market doesn't rally to the 1100 area first. If so, then time line is off. On one hand it's worrisome as everyone is expecting the market to rally to 1100 first before tanking, and on the other hand it's refreshing to know that I'm not in the majority this time.

Well, that's about the best I can do to help guide my fellow traders.  Sorry I don't have a crystal ball.  Just be patient when the market does start to fall, as the 995-1000 area should be the first stop before any decent bounce.  Hold on to your positions till then and get out and go long,  as I will be doing so.  Whether or not this happens before next Friday is anybodies guess?  We definitely will have the highest chance of that happening in the coming week, as the banks reporting are big movers of the market.  If the market doesn't like what they report, then the move might happen by option expiration?  Let's hope so...

Red

P.S. Here's a interesting video for you...