Tuesday, July 20, 2010

Why a Counter Trend Rally to 1111 or 1145 is Possible

While it is always entertaining to evaluate structural targets for the unfolding of a trend, it is also prudent to continually be 'the devils advocate' and consider market moves that are counter to the prevailing trend. The chart presents such a scenario.
The SPX has retraced approximately 50% of the July 8 -July 14th rally this morning and has began to advance once again. If an A-B-C rally was to commence at this stage, a case can be made for the rally to extend to the 1112 or possibly the 1145 level before resuming the downtrend. A rally to the 1140-1145 area would cause many bears to cover and possibly go long--joining the bulls who believe the all 'clear signal' has been given by the talking heads on Wall Street.
This A-B-C scenario would set up the seasonal bias of the markets which suggests that the autumn is the usual time for the markets to experience HIGH ANXIETY. Perhaps a early August peak is in store followed by the much anticipated 3 Wave to the downside. August 9th and August 20 (+ or - 2 trading days) would be the potential time frame for the pivot to be established.
Given this possible scenario, traders should adjust their expectations and strategies accordingly.

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