US indices continued lower yesterday making a lower low. This lower low could be what was needed to complete 5 waves down from the all time highs. The wave sequence could already be complete or we might just need another last leg down to complete the entire move. If you are familiar with Elliott wave theory then you should know that next we should anticipate an upward corrective move that will most probably reach the 50% or 61,8% Fibonacci retracement.
As most of you that follow this website you will have noticed that we were bearish near 1700. Trading2day subscribers have seen through our exclusive twitter account as I opened short positions in SPX from 1698. Our longer term view may remain bearish, but managing our position is very important and short term trades could be crucial for us to continue to be profitable. Prices as shown in both charts posted today have almost completed 5 waves down from the all time highs. A new low could be expected but it is advised that buy stops are lowered. Support in DOW is found at 14750 and at 1620-25 for SPX.
We believe that an upward corrective wave will soon start and will push prices towards the previous wave 4 or at the 50% or 61,8% Fibonacci retracements. At those levels we will once again look to sell the market. Aggressive traders could also enter long positions to take advantage of the impeding upward bounce. It should be reminded that trading corrective waves is even riskier than normal as corrective waves do not have a specific price pattern and can behave abnormally.
Concluding, we are near a short term bottom and bears should cover or protect their positions. We expect an upward bounce soon to come in US markets. The form and pattern of the upward bounce will decide if we should expect to see more selling pressures or if the buyers will regain control of the markets.
As always, thank you for taking the time to catch up on my thinking.