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Keene Little : 3/5/2007 12:38:35 AM

Everything I said for the NDX, SPX and DOW hold true for the RUT but I consider the RUT to have one of the cleanest patterns and is another reason I'm leaning towards the Monday low being the end of a 5-wave move down from Feb 22. I show the RUT bottoming Monday morning around 768 which is near the prior lows in November and December and is a 38% retracement of the July-February rally. Link

I then show a bounce that takes us into Friday, like the others, but this time I used a 62% retracement in price (which the others could easily do as well) at 806. That would place the RUT back up for a retest of its broken uptrend line from August. A bounce up to that Fib level at that Fib time and at that broken uptrend line would be time to sell your first born, mortgage your house and sell the RUT short. Just kidding of course (on the mortgage part) but you get my drift--it would be a MoAP (mother of all puts) opportunity.

Keene Little : 3/5/2007 12:21:43 AM

For the DOW I'm going to show two slightly different scenarios, one of which is very bearish for the early part of the week, and the other is like the NDX and SPX. The more bearish one I don't particularly like but just in case the down futures on Sunday night lead to another rout on Monday then the more bearish wave pattern will be moved to preferred status. It calls the consolidation since the first low on Tuesday part of a sideways triangle B-wave and it projects the next leg down to DOW 11474. Link

The reason I don't like this is because the final bounce within the triangle is too short but I can't discount it until we get a new low followed by a rally back above 12200. The two corrective bounce scenarios for the upcoming week that I showed for NDX and SPX also hold true for the DOW but I didn't want to show them both on the chart. So what I'm showing is a new low just under 12000 followed by the start of a correction that runs into the end of the week.

Using the same 50% price retracement in 62% of the time I get an upside target of 12386 on Friday. It should be some kind of a-b-c bounce and it should set up a great shorting opportunity into opex week. The more bearish scenario would probably set up a rally into opex. Another reason I like the rally into the end of the week, and the down opex week, is that it would be a similar setup as we had in May.

Think of all the put sellers who have been in the habit of selling puts for premium and thinking it's a can't-lose strategy, which has been true since July. When the market suddenly moves against them they have to cover or hedge (sell the stock short) and that just adds selling pressure to the market.

Keene Little : 3/4/2007 11:55:04 PM

The SPX chart looks very similar to the NDX chart I posted but on this one I'm playing with some projections from a new or equal low on Monday. This one may be a little confusing so I'm doing two slightly different scenarios on two different charts to hopefully make it less confusing. I want to show Fib retracements, projections and time to show where and why I'll be looking for a correction to end. Both of these scenarios assume we'll find a low very soon after Monday's open. If SPX were to drop below 1370 and not return then all bullish bets are off for the day.

For the first scenario I'm going to assume Monday's low will be near Thursday morning's low at 1380.87. It could easily undercut it some and not mean a whole lot. If futures keep dropping as they are Sunday night, that picture could change. This chart shows an a-b-c bounce in progress since Thursday's low and Friday's pullback is the wave-b pullback in the bounce. Link

This scenario calls for a very strong rally on Monday into Tuesday to finish wave-c near 1421 (with upside potential to 1428) which would complete the wave-2 correction to last week's decline. The typical correction for 2nd waves is about 50% retracement in price in about 62% of the time it took for the 1st wave. The 62% Fib time projection is the light vertical line intersecting the 50% price retracement and falls on Tuesday morning at the open. If we get that kind of strong move into Tuesday then that will be the place and time we'll want to look to short the rally.

The other scenario calls Friday's decline, to wherever it will end on Monday, the completion of a 5-wave move down from the February 22nd high. For now I'm going to assume SPX will drop down to near 1371, at the bottom of a channel for the recent bounces and the 38% retracement of the July-February rally. From there we should start a 3-wave bounce into the end of the week for wave-2. Using the same 50% price retracement in 62% of the time I get a retracement to about 1416 mid day Friday Feb 9. Link

Both of these scenarios assume we'll find a bottom quickly on Monday morning--watch out for the v-bottom that spikes the shorts out of their positions. Assuming that will happen we'll then need to wait to see how the bounce develops in order to get a better handle on which bounce scenario is playing out. Then we'll be able to set up for what should be an outstanding short play. I like the 2nd scenario because it calls for a high for the correction on March 9th which happens to be a very strong Fib turn cycle date for the DOW which I'll show next.

Keene Little : 3/4/2007 10:57:35 PM

Futures are already down pretty hard Sunday night (ES is down 8 points, NQ is down 13). It's looking like the weekend papers have many thinking the bottom is going to fall out now and they're scurrying to get out, get short or just hedge.

After Tuesday's plunge I had shown a chart that called for stair-stepping lower to a final 5th wave down into last Friday in order to finish the wave count for the move down from the previous week's high. That's still my preferred wave count (rather than thinking the bottom is going to fall out from here).

On Friday I had mentioned that we could get a final flush on Monday morning to scare out the weak stock holders and then start a rebound into the end of the week. Until I see the market drop much further than where futures are currently I don't think it will be wise to chase the market on the short side from here.

I'll update a few roadmaps for the main indices we follow and you'll notice that I'm not calling for a steep decline next week. Just the opposite. The question in my mind is whether we're in the middle of the correction with Friday's pullback (including any new low on Monday) or if the corrective bounce will start after Monday's low. As an example, I show this on the NDX 60-min chart: Link

If Monday's low is only a minor new low then it could be counted as wave-b in an a-b-c bounce that started from Thursday's low. That would mean a spike up into a high on Tuesday would be the end of the correction and it would be time to get short. A Fib target near 1800 would be an ideal level to enter a short play. But a low on Monday, especially with lots of bullish divergences, could mark the end of a 5-wave move down from the February highs in which case we should get an a-b-c bounce that takes most of the week to play out. That would set up a strong decline to new lows during opex week.

Keene Little : 3/4/2007 10:20:17 PM

Monday's pivot tables: Link and Link

OI Technical Staff : 3/4/2007 9:59:59 PM

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