Saturday, March 21, 2009

Special: What to expect now?

Let me start of with a great quote from a major analyst commenting on current market enviornments.

"You’re forced to make predictions, but they’re just random nonsense.”

I have provided quite a detailed update on the past 2 weeks to review what has occured. Now what do we make of it going forward? There are a few things to consider. On the short term side for the next week or so the chances of our retracement toward the mid 700 ranges are fairly high. So lets review that at first.

The first is a violation of the head and shoulder scenario that will be very easy to detect. You can see here very clearly that we have a very narrow range ahead of us to know if the head and shoulder will give us a reversal to the upside or a failure to the downside. I will be describing the upside scenario further down.

We have a great crossover on the stochastics here right on the upper most range giving you strong signs of downturns. Of course be careful with technical indicators at the moment but it is very likly to support a down move from here.

Unfortunately, our mid term decision range is fairly wide at the moment, a break of the 709-716 range will validate that the primary trend is continuing, that also means we have a very high probability of taking out the 666 low, while there is some support there it should be short lived. On the upside of course the 800 range.

Retracement wise, we need to hold 741 for the bulls. If we do end up seeing violations of this range, which is very possible, we need to see reversals fairly quickly, the further down we go the stronger the reversal moves have to be. Worst case scenario is a break towards the 724 range that needs to see a reversal above 741 within 2-3 days (preferrably less). Remaining sideways after a break of 741 will make continuation to the downside much more likly.

Depending on how we end up rallying off the support, we should see a test and break of the 800 range within a 2-3 week time frame after the retracement bottom. This would be inline with a continuation towards the 870-880 as the next major target (with a stop at the 840-842 of course) and possibilities of 900+ top by May. Of course it is also very possible that this rally will fail well before reaching 800. I will be providing more details of course once if the retracement has completed.
The above would be a completion of the bullish wedge formation giving us quite a few gains on the upside. I made a blue circle right around the 710 range which is my confirmation to continue lower.

As you can see all of those forecasts make one large assumption - a move towards the downside in the next week. I have promised myself and you guys to be more objective and play both sides. However, I fail to see how the market can make any moves above the 800-820 range from where we are today.

So lets play being a bull for a week yet again. If we are to turn towards the upside we should see a test at the 800 range by mid week most likly wednesday. As many of my longer term readers remember I have emphasized the importance of 800 over and over again (at the expense of sounding like a broken record). The bulls need a lot of work to get this important resistance taken out. A retracement towards the mid 700 range actually works in the bulls favor. If we will not see a major retracement now and work towards 800 starting monday it should still require a minimum of 2 more tests before I can see a break happen here. Each retracement of this test should be smaller in size to form an ascending triangle.

The only other way I can see a break occuring is through outside interventions yet again that would violate our technicals. Its hard to play if you do not know the rules and this is one of those cases. Playing by the rules going forward we should not see a break of 800 for the short term - but again, anything can happen - who knows how many more trillion we can throw at this to gain another 10% on the market.

To close the post with the opening quote - "You’re forced to make predictions, but they’re just random nonsense.”

1 comment:

  1. Chaugner; I appreciate your analysis; new to this "game" and have been (selectively) taking in many blogs to get up to speed; yours has been the most informative so far. Will tune in often and hope to be able to add to the discussion at some point.