Wave Counting S&P - Sep 17, 08

Charts courtesy of stockcharts.com

What a day! Despite being right, and having called it right, I feel no joy. Greed and stupidity of those who have been entrusted with the care of many has led us to the verge of collapse and hardship.

Let's take a look at S&P 500. I am going to present an OEW count of the S&P 500 that I think is very probable at this stime.

This is a weekly chart of S&P 500

According to this count, market is correcting along its primary wave A. It so far has done major A, and major B, and we are in the last leg, major C. Within major C, we have completed intermediate A and intermediated B, and doing intermediate C.

This is shorter term view showing the ongoing intermediate C.

Accoding to this count, we are in minute iii of minor 3 of intermediate C. Third waves are where maximum damage is typically inflicted, and we are in a iii of a 3.

Bear in mind that there are no guarantees that this wave count is correct. As things stand, it is the most probable to me, and until market forces a change, it will be the count I will use to navigate the market.

As you can see from the next chart, we had another massive distribution day. Seemed and felt like a fire sale -- please, get me out of these positions, any price would do, one could almost hear that.

In situation like this, I cannot think of any advice for those who are stuck with falling long positions. One does not know when it ends. Yet one does know that a bounce is imminent. I really am not sure what to do with long positions that are falling hard like this.

Those who are in cash, well, they sit tight, and wait for signs of a bottom to ease back into the market. Unless they are very nimble, capable traders, they might better be off not to start shorting right now.

Those who are short from higher levels, take a moment to cherish. Ok, that's enough self congratulation, market is getting very close to a bounce. Just look at that spike on the volatilty index VIX on the charts that display it.

Also, distribution days like this will eventually snap back. See what happened with gold stocks? Sellers get exhausted. Professionals of the market smell that. They start the rally, late shorts get squeezed hard, rally will feed itself untill all leveraged, and scared shorts are cleared.

Be on the watch, the job of managing a position ends only when the position is closed, no need to rush to sell, just lay out a game plan of what portion of the profits you will be taking and under what circumstances.

Here is another chart with some other breadth indicators. S&P is under a NYSE summation index sell signal. Summation index signals are rather late signals, and should be treated as intermediate term signals. Until it reveses, any bounce may be suspect of failure from a medium term point of view. That is regardless of the ferocity of the rally, or the loudness of the screams of mad men of financial shows on TV.

These are dangerous grounds. Many, and many self-appointed professionals and gurus are being slaughtered. Cash is a position, too.