Tuesday, May 18, 2010

Two Scenarios

The markets reversed on Monday--the S&P 500 bouncing off the weekly support level 1114--with accompanying Doji. The Japanese interpretation of a DOJI is that the bulls and the bears are conflicting and the market is at a point of indecision. It appears that some form of secondary bottom was made on Monday--which coincides with the mid month Energy Date. The initial bottom at 1065.79 was made at the May 5-7th Energy Date.
Two basic structures can be formed at this juncture--the continuation of a 3 wave corrective rally and then a resumption of the recent downtrend--or the first wave of a 5 part impulse rally which would indicate higher prices in the near future. How the markets behave near the 1158-1162 level may reveal the highest probability outcome. The various volume and breadth ratios will also be important to watch--especially the components of TRIN.
  • Advance/(Advances + Declines)*
  • Advancing Volume/(Adv. Vol +Dec. Vol.)*
  • * sustained readings above 75% will suggest the bullish resolution
The chart below indicate harmonic levels associated with the two scenarios. This should assist with your trading strategy.

right click graph for enlargement options.

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