Thursday, 10 May 2012

A Mirror to July 2011 ?

With the market having another red close, we're now getting awfully close to that critical sp'1340 support level. VIX still remains relatively low, but it did break 21 today, and a quick move to 24 is viable at any point.

I wanted to again highlight an issue that I am keeping in mind for the coming few weeks. Every market cycle is unique, but cycles often repeat in the same style. Lets consider the last major collapse wave, from last July/August 2011.

SP' daily July/August 2011

SP' daily - count'2 bearish

Considering the parallels

In the destructive wave'3 of last summer, we saw 3 main waves (black count). Waves 1, 2, and 3 lasted 7, 4 and 12 days respectively.

Presently...we are day'6 in this cycle. Is Thursday due to be the floor of wave'1 at the sp'1340 level? Are we then going to see a 3-5 day mini-ramp/bounce from 1340 to around 1380/90?

Keep in mind my SP H/S formation chart....

If correct, it would suggest the next down cycle (minor wave'2 of big'3) would begin no later than opex next Friday, quite possibly as early as next Tue/Wed. Remember that 'minor wave'2 of 3 - in last years wave resulted in a 246pt fall in 12 trading sessions.

Taking a very conservative approach to things, just assume its half of that fall, 1390 would result in 1270 - the 200 day MA, by the end of May/first week of June.

Its been a long day, I've no positions, so I will start afresh Thursday morning.

The current plan is to go long at the base of the next 15/60min cycle, probably around 10.30/11am. So long as the market does not break sp'1340 I would be pretty comfortable taking a new position - especially once Bernanke is out of the way again (he talks at 9.30am).

Goodnight from a rainy London