Monday, July 6, 2009

Some Projections for This Decline

Click on Chart to Enlarge

The chart above is the S&P 500 with several notes and a target zone for either the bottoming area of the first phase of a larger bear market decline, or possibly a right shoulder on a large scale head and shoulders bottom from Nov 2008 to present (and beyond). The target zone is actually derived from past bear market bottoms and the corrections that followed them. So this would actually be most applicable if the March 2009 low was a bear market low. I don't believe it is, but in either case there are several other factors which suggest this is a very reasonable, albeit somewhat broad, target zone which I am eyeing for potential exit of the current BGZ trade, and possibly as a time after which to consider some bullish short term trades.

Today was interesting in that the market fell below the neckline of the head and shoulder top pattern early in the day, but reversed to close above it. This is not unexpected, however, I also don't think that anyone should get too bullish, even in the short-term, because of this. I can think of plenty of times when bulls (or the reverse as well) were looking at a certain area for a false breakdown, and the market obliged by giving a nice reversal pattern, only to quickly fail over the next couple days. As I had mentioned last week, this neckline area is probably a "bait" area for bulls, with the larger context remaining bearish.

At this point I have almost ruled out the idea of taking any possible bullish trade this week, though another push to new lows with a bunch of short-term divergences could change my mind. However, any trade of that nature would require a stop loss from my perspective, due to the counter trend nature of the trade.

I don't know right now what to expect tomorrow, but I am leaning toward a tomorrow being a down day at this point.

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