Monday, August 8, 2011

Next Support

Click on Chart to Enlarge

Not all that much new to say today. Obviously the SSO trade was stopped out as the attempted rally failed. The close today is near the 1130 level from the prior trading range. If this level is penetrated (either now or after a rally attempt) the next chart support range is 1040 to 1010. All these are indicated as green support lines on the chart.

While I don't use the traditional subjective Elliott wave labeling to track market moves, if this is a wave 3 down, it often may be a 2.618 multiple of wave 1 which would put the S&P 500 at 1065. So before a significant bear market rally, we may see the market move down to the lower end of this support range.

FYI, usually these extreme volatility parabolic declines end with an extremely large gap down. So my guess would be that tomorrow we may see a very large gap down which again could be a nice buying attempt for short-term traders. If the market gaps up tomorrow, then I think the probability of a morning sell-off would be very high based off the stats I've seen and the way these types of moves go.

I may post a bullish trade to try to catch the huge snap back rebound to come if conditions look right. Stops must be used on these moves though because IF the market doesn't rebound the volatility is still expanding and the possibility of a historic market decline becomes reasonable.

So now it has been 5 days in a row closing below the lower bollinger band for the S&P 500, and basically 9 for the Russell 2000. Remember that the Oct 2008 crash ended after 5-7 days at or below the band, so we are extremely stretched here.

As a side note, this move down is larger and faster than the Jan 2008 plunge that really kicked off the last bear market. By using price logic concepts, this suggests that the market decline that has begun may be of similar or greater severity than the 2007-2009 bear market.

My hope for how this market unfolds is for a large counter trend rally this fall/winter which could provide an ideal short-selling/put option buying point. The CRB and CCI commodity indexes are now both below the June lows which puts them in a very vulnerable position. My belief is that gold and silver will sell off substantially when this decline ends and we get a counter trend rally. They are trading mostly inversely to stocks right now. It looks as if the US Dollar will not take off to the upside until the precious metals fall. Most commodities are weakening substantially, but the spike in gold seems to have kept the US Dollar from moving in typical inverse fashion to commodities.

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