Thursday, June 24, 2010

Some thoughts

Ok its been a while since I have made a bigger post in regards to my outlook. There are quite a few possibilities, both bullish and bearish that can develop here. First of course the bearish formation, as you can clearly see we have setup a nice set of channels on the downside that could provide guidance for us going forward towards our 880 levels.

1) Bearish (tame) - the tame bearish could would reside inside the current channel we have formed with the upper range defined by our 1220 peak and the lower range by our flash crash and 1040. In this scenario we are ready to make a lower low in the 1008 range that would then setup nicely for a bullish divergence on the MACD (lower low SPX, higher low on MACD). Time target for this would be July 8th-13th. This could return is all the way back to 1075-1080 before another leg down could start or continuation towards the upside.

2) bearish (strong) - this scenario would overlap into the third channel that we have not yet breached on a close basis with a target of 880. Time target would be a break of 1100 by August 4th-6th and then a strong 2 week move into the 900 range.

3) bullish - now this believe it or not is still a possibility. During this scenario we will not have a MACD cross and holding above 1072 within the next 3 days (to be able to remain in the last sector we are currently in. Many times uptrending markets are not able to hold their trendlines and are required to reset longer term indicators in order to continue and balance supply/demand. This has happened during our 18 months of our lows many times, however, the key difference is that at the moment we have stepped down 2 additional levels giving this the lowest chance out of the 3 scenarios. The great thing here is that we have a clear signal and our lows of today MUST HOLD - we can breach them intraday but a close below 1075SPX in the next 3 days will invalidate this scenario.

Scenario number 1 is the most likely as I am not anticipating another crash here (scenario 2). I am currently not positioned for either of those moves. I did take a long today close enough to the low of the day but this position has a tight stop and is not all that big. I am playing of course for the low probability scenario 3 but a lot of damage has been done on the charts in the past 3 days that will not easily be repaired.

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