Option Investor
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Today's pivot table:
[Image 1]

"The DOW posted its best monthly gain in more than six years." That should keep the bulls coming back for more. But yesterday's rally looked more like a correction of the recent decline. If it's part of a larger A-B-C bounce (pink wave count) the pullback that started from yesterday's high should be followed by another leg up. But notice where RSI turned back down. MACD is curling back over from the zero line and if it crosses back down it will give us a sell signal.

SPX 60-min chart:
[Image 2]

The pink line is calling for a little higher before dropping back down for an A-B-C correction to the March rally. The dashed line is also an A-B-C pullback which has the 2nd leg down (wave C) starting from yesterday afternoon's high. The dark red wave count considers the March rally as just another bear market rally that will get completely retraced as the market makes a new low sometime this month. Of the three scenarios shown I think the dark red and the dashed line are the two most likely. Each requires Tuesday's high (SPX 810.48) to hold. Futures are down hard again this morning so that's starting to make the pink wave count less likely. Below 766 would be a bearish heads up but it takes a drop below 750 to increase the probability for a much deeper retracement if not a new low.

SPX rallied +24.9% from low to high in March and for those who think that rally was too big and strong to be considered just a bear market rally, consider the following previous rallies since the October 2007 high:

March-May 2008 -- +14.6%
October 10-14, 2008 -- +24.3%
October 28-November 4, 2008 -- +19.2%
November 21, 2008-January 6, 2009 -- +25.1%

Jim showed some bear market rallies during the 2000-2002 decline in last night's Wrap. So the recent rally fits right in there with the other rallies. In the 1929-1932 bear market there were five bounces between +20% and +23% and all five were followed by a new low. I have no idea whether the March rally will be followed by a new low but it sure wouldn't be unprecedented. In fact a new low from here would be typical. None of the economic and financial problems are predicted to get better this year so this could be just another one of several bear market rallies as part of the slope-of-hope slide lower. Don't get caught up in all the hype and end up disregarding proper risk management with your positions (that goes for shorts too).

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