No Comments Written by Anthony Truong on February 3, 2008 – 11:55 pm

Apologies for the lack of charts over the last week or so, but market action has been very difficult to read. I thought I had spotted a near term high on Wednesday following the US Fed rate cut, but prices have continued to rally to new short-term highs. My count has thus changed, as the recent rally has become a wave 2 (see ‘Daily’ chart) (of larger wave 3), rather than a lower degree 4th.

The rally does not look impulsive though, with (so far) 5 overlapping waves. The choppy nature suggests corrective, and so even though the rally from January 22nd is not easily countable, we require one more down-up sequence to complete 7 waves (by definition, corrective). I am expecting this top to occur somewhere between 1410-1430 in the SPX; rather large range, but there exists a cluster of resistance in this region, as well as being the price range of a lower degree wave 4.

Once price action moves below the bright green line (daily chart), I would venture to say a 3rd of 3rd wave would be starting, with significant downside expected (confirmation occurring when prior low is surpassed [1224 SPX], purple lower channel line should be broken soon after [daily again]).

The only concern I have about the current count is that the drop from the October 11th high could be a large degree 4th (with the current labels of waves 1 and 2 representing waves A and B, and wave 1 representing C). That would mean we are about to enter an intermediate bull market, with a new all time high expected. It’s possible, but I am not betting on it given the current market climate and the overwhelming bearish signals (not the least of which include: the majority of sectors significantly down, a Dow Theory sell signal in place, and sentiment still being bullish overall). Nevertheless, if the purple upper trend channel line (daily chart) is penetrated, this would strengthen this outlook, with confirmation occurring if prices move beyond 1519 SPX.

This coming week will help to determine the overall trend, as the SPX must turn down soon within cited areas of resistance to confirm a 3rd of 3rd is here. I am very VERY bearish.