Wednesday, October 20, 2010

10/20/10 EOD Update- Bullish Bias

EOD Update - Bullish Bias

I don't think the bears were expecting this today. The market remains bullish. Pullbacks may be expected but no crash (That's what puts are for anyway which I carry to hedge. Hey you can never be too sure).

I posted last night my reasoning for a bottom yesterday. The 5 min wave count, dollar and EUR/USD was signaling a wave 4 (degree up for interpretation) bottom.

There are still a few options on the table in terms of where we are at now.

SPX - 60 MIN

I can't say for certainty at the moment which count is my preferred. I list the 60 min above first because it has been my main one up until I started posting the EW Oscillator chart below.

This chart above has us working on minute [iv]. There are several options here for [iv].

It can be a flat, zigzag or triangle. So far, we have seen a three wave structure down, which I have labeled (A). Today's rally was a (B) wave up that may not be complete yet.

Based on this count, minute [iv] may be working on a flat. Given the size and time of [i], [ii] and [iii], [iv] will have to work on more time.

How does a wave correct with time? It moves sideways. How will it achieve this?

Possibly a combo corrective or triangle. On the count above, this initial (A)-(B)-(C) wave may only represent a wave W of [iv], which will then be followed by X and Y to complete it before we shoot higher.

Of course it doesn't have to only move sideways. It may drop further as well and a good target lower would be the 38.2% retracement. Notice where that falls? Just slightly above the minute [i] top. Certainly it doesn't have to drop that far but the retracement level should serve as a guide if we break 1155 and out of the range.

This count as it is labeled will be voided if [iv] drops below the top of [i] at 1129.24.

What has me a concerned about this count is the pink trendline which I continue to watch. Once again the market has gyrated around this line and has mainly stayed above. If it continues to respect this line, the EW Oscillator count below should provide another perspective, which is very bullish.

SPX - EW OSCILLATOR

I mentioned my concerns with the EW Oscillator count the other night, specifically with the way I had it previously labeled. See here.

The fact that (iii) was shorter than (i) bothered me. It's not a rule violation as long as (v) was shorter than (iii), but I didn't like it because if this is a wave (iii) of [iii], it should be at least equal to [i] if not longer.

I have since relabeled the degrees and now have it labeled as above. Now this is a pretty bullish labeling but I think this may work.

One cannot see it on the chart but (iii) would equal (i) at 1230. That's a pretty significant level since there is a significant Fibonacci confluence at that level as illustrated by the chart below.

SPX - Reverse Fibonacci Technique

Remember this chart? I posted this on 10/8, "A Road to 1228 Revisited" anticipating a move to the first confluence level. This initial level of 1183-1190 does not line up as significantly as the 1232 level but we hit it so it gives me confidence that 1232 is a very good target.

The odds, based on this technique, are very good that we go to 1232 because the four projections are stacked right on top of one another.


SPX FIB FAN

Another chart I have followed that gives me confidence in my analysis. Once we broke over the yellow fan on 10/8 the market found support there after yesterday's sell off. I forgot to post this chart last night as another reason we found a wave 4 bottom.

SPX - RANGE

The range is still in tact. We will know by the end of this week where it heads. Up and out or back down towards the bottom of the range. Place your bets.

The EUR/USD and /DX charts below are follow ups to the post last night. And the results are...

EUR/USD

The rally confirmed the turn/bottom of 4.

/DX

The dollar's sell off, confirmed that the most recent rally was a counter trend rally only. Looks like the dollar will continue to slide and if the inverse correlation to equities continues, the equities market should continue higher.

Ok. Sorry for the lengthy post. Of course, now that I have written all this, the market will crash tomorrow ;) I'm not betting on it though.
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