Another leg down coming up?

Last Wednesday, bloggers and readers were going nuts as the market was dropping sharply. Crash call after crash call was being published, and it seemed impossible for the market today rally. Of course that was the bottom, and here we are, 70 points higher! I am noticing a bearish pattern that I’d like to share. I consider it valid as long as SPX stays below 1120.


Notice that the drop from 1216 can be counted in a series of first and second waves. Wave1 ended with the ‘flash-crash’, Wave2 was the sharp reactionary rally. Wave-i of Wave3 retested 1040, and now Wave-ii of Wave3 appears to be unfolding as a flat (3-3-5). Notice that volume has been trending higher with the declines, and lower with the rallies. This tells me that we’re still prone to selling off. Today’s breakout above 1105 probably convinced a lot of bears to capitulate, as is apparent from today’s price action. We’ll see what happens!

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