Whether or not you blame GS, market pullback creates potential opportunity

Whether or not you blame Goldman Sachs (GS) for the huge drop today (since the SEC filed something against GS after the market open this morning), this market pullback creates a potential opportunity. But in which direction? Tony Caldaro in his Friday evening update of his Objective Elliott Wave (see links at the right side of the page) refers to this as a probable fourth-wave correction that will pave the way for a higher rise into a fifth wave up, perhaps testing his long term SPX 1222 pivot (or perhaps even higher). Tony's hourly chart of the SPX is below, from his public charts available through his link with his updates (thanks again Tony!). Then there are other Elliott Wave types - many readers will know the company I'm referring to - that are calling this a wave 2 UP and saying it was due to top any day now, with the market set to roll over and down for the next several years.

So which is it? Market up through perhaps September 2012, as Raymond Merriman even suggested in his public weekly preview last Friday? Maybe as a larger fifth wave or Tony's idea of a larger third wave? Versus a wave crest perhaps in May or August, as yet another idea that we've been seeing from Terry Laundry's T Theory for a long time now?

As traders and investors we don't really get the luxury of certainty about the long-wave cycles. It's kind of like the weather - forecasting gets easier when it's shorter term. For now, we'll want to see if the testing of SPX 1190 opens the door to more downside, and what that does to the technicals. I'm aware of the view that cycles will pull the markets down for weeks ahead - at least, that's one view but I think some other cycles analysis feel differently! Here's something else to be aware of: the large selling volumes in SPY (the ETF for the S&P 500) today. It remains possible for that to be a watershed situation that doesn't allow the index to continue moving higher into mid or late May.

To really get a better sense of how to play this, we'll want to digest the information available from a set of sources this weekend. Including the recent overly hot sentiment - even though TRIN spiked smartly today, so the TRIN for example doesn't guarantee that this isn't a quick buying opportunity.

It's not at all uncommon for weakness following options expiration to show up into the end of the month (like around the 26th of a month), creating a buying opportunity. So traders will want to size up how things are looking for next week. Again, given big selling volumes, and the probable reaction of retail traders over the weekend to today's GS news, it may be prudent to hold off for a few more trading days before getting a new round of long positions ready. I'm mainly saying, don't just assume it's "Sell City" because there may be a decent long swing trade that sets up leading higher into early May and then the mid-May to perhaps May 21 opex.