Short-Term Advance Could Set Up Major Top

03/02/2010 12:01 am EST

Focus: STRATEGIES

David Grandey

CEO, All About Trends

So here we are, still in this ‘B’ wave up, or snapback rally, whatever you want to call it.

While the full Stochastics are back to being overbought, we have the general structure showing the potential of some more work to do on the upside in the next week.


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A few weeks back, we were talking about the 78.6% Fib level. The drop off of the 1130 level down was so fast that one could say it's the equivalent of a gap. Lately, a lot of gaps have been getting filled, and should this one get filled too, it would not surprise us. In fact, we'd prefer it to get filled to get it out of the way—if we are going to get a lasting top, that is.

The pink uptrend channel is still intact with Friday's action (albeit feebly), marking the start of a potential POH (Pullback off highs).

The wave structure, whether you want to call it ABC or 12345, makes no difference to us as a potential wave C, or 5 as shown in the chart above, basically say the same thing. Of course they can truncate too you know (stall and fail).

Here is the 60-minute OTC composite chart to go along with the S&P 500 for your viewing pleasure.


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For those of you who are not familiar with Elliott Wave, remember, it's all about trends as in trend lines. This is for you:
With the S&P 500, it's all about the bottom pink line. It's all you need to know. It's still intact and still the order of the day. We will not get any decisive break to the downside or the start of a C wave until we break this line. This is why it's imperative that we continue to monitor this line.

In Summary

It's almost as if about the only thing that is going to get this market into gear is a news-driven, futures-related, computer program-driven pop as manic Monday is upon us. And we all know what happens shortly thereafter that occurs right? Nothing. One can only imagine what the matrix will cook up!

Should we work higher next week, we'll keep looking to add to the short side one step at a time, a little bit here and a little bit there. It's called courage of conviction based upon chart pattern recognition.

Remember on the way up (while we were in a big picture, clearly defined uptrend above the 50-day MA), the name of the game was to buy the dips and sell the rips. And now, short the rips after the computers pop it and cover the dips may be the flavor of the year.

Below is the big picture chart of the S&P 500.


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As you can see in the chart above, we are struggling at the 50-day MA, we have the full Stochastics in overbought territory, and we are backtesting a clearly defined uptrend line break commonly referred to here as a KODR (Kiss of death retracement). A KODR happens when an issue or index breaks an uptrend to the downside and comes back up to kiss it from underneath and then fails.

David Grandey of PortfolioTilt.com

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