S&P 500 - Feb 3, 2009

charts courtesy of stockcharts.com

Is market expecting news from government? Fed? Any other entity of eternal power?

Index managed a decent rally off short term oversold levels.

It still has room to carry, and if it does, index will become oversold on 60-minute timeframe into the 850 area of resistance / support. That would make things a bit more lively.

I am sure, by now, many if not all of you have seen and read about the symmetrical triangle that is being set up.

Long-time readers may remember the post I had a while back on triangles. Everybody seems to see them everywhere . They are, very much like Heads & Shoulders, one of the most abused patterns in technical analysis.

In this case, an intermediate wave 4 triangle is a possibility but it is not my preferred count.

BTW, the reason many traditional technical analysts talk about the failure rate of triangles is that what they think is a triangle is in fact not a triangle and some incomplete wave pattern that they use to pick points and draw lines. Under Elliot Wave, there is no failure with triangles, the trick is to identify them correctly, and that is easier said than done while waves unfold.

So, if you are interested in Elliot Wave, and think it is a sound method of analysing the technicals of a market, be aware and build your filters for triangles, you will have them thrown at you by a lot of people and most of the times it is not what they say it is. In this case, it is a possibility, which is of lower probability for me at this time.

Index did present a good setup. On Feb 2, it had set multiple positive divergences, and today it rested for a while on its short term MAs and then took off.

I did not establish a new long position. Towards the end of the day, I took profit on a few call positions that I had from Friday, and went slightly short.

Breadth was positive and volume expanded.

We had more new lows that new highs (Net new highs has not been positive for a long time)

These are highly emotional times in the market. There are all sorts of analysts and bloggers, like yours truly, with all sorts of crazy ideas. Remember that many, if not all of us, have no idea what tomorrow brings. All we do is building probabilistic models, and models do fail every now and then.

Remember what I just said about models next time you see a Guru on financial TV who says he can predict market moves down to the exact day. There was one such character recently on CNBC, and when he was asked why he did not own the world as a result of his absolute insight into market affairs, he said he was a Dutchman and not an American. What the hell does that mean?!?!?!?! I mean I don’t give a rat’s behind how good or bad somebody’s track record is, why does he have to generalize an entire nation, as diverse as Americans are, into a category?

Anyways, leaving gurus and their nationalistic bravados behind, yours truly has no knowledge of the future.

All I can say is this: as long as all three North American indexes (Dow, S&P, Nasdaq) have not made a higher high above their January 28 peaks, I will treat any rally from this point on as an opportunity to build a position against the market. I am saying an opportunity, I may or may not take it depending on how I feel as price patterns evolve. If they manage to do a higher a high, I will probably take my losses and re-evaluate.

BTW, the guru on TV does have a vey good track record (he says it is 100%, but common!), and called for a rally into March, so, it seems like, in matters of markets as well as in matters of nations, I have a difference of opinion.

What I am doing is taking the side of the bear, looking for gradual entries along the next 50-60 points of a possible S&P rally.

This is not a recommendation, I am not a guru, I do not know the future, and my track record is not 100%.

It is only the way I have, for now, decided to speculate with my money. And, of course, market action may force me to abandon my plans.

There is gap down from 870 that caused the Island Reversal pattern on Thursday, I wonder if we get a fill, and I wonder if that fill would cap the market rally.