S&P 500 - Jan 12, 2009

charts courtesy of stockcharts.com

Index picked where it had left things on Friday, and sold off. Short term wave count of selling unfolded in a series of clean 5-wave drops, nicely trending down for anyone who might have been interested in a trade during the day.

If this count is correct, we should see a bounce soon, and depending on how that bounce unfolds, we may have a rally.

I can however count this in a more bearish way

I prefer the first count. It better fits the momentum pattern.

The selling that started on January 6 has almost retraced the entire rally from December 29, and as such, even if my bullish count is correct, I will be leaning towards an a-b-c pattern (or a combo) and not a 1 ... 5 pattern.


Just to refresh our memories, there are two counts that I am currently following from a number of counts that I posted on January 3rd

This is my preferred

And this is my alternate

This was the third day of distribution, not as heavy as we saw last year, and on below average volume, but if it does not stop soon, it may cause a snow ball effect and hit many programmed stop-loss settings.

Breadth as you can see from the previous chart and this one was negative

And VIX has been rising.

We are still in the 850-912 range that, by now, everybody and their great grand ma knows about. Bulls should get their act together. This market needs a strong rally in order not to break the pattern of higher highs and higher lows that it has been setting since the low of November 2008.

One final note, there was a opening gap up from December 30 that was filled today

Depending on how adventurous I feel and how things unfold, I may try to trade around the gap

In closing, I would like to congratulate Donna, one of our readers, who, through a comment, expressed suspicion about the rally and called a short right at the top, great call!