ChartsEdge map for 2/4; and comments about the directions of the S&P 500 and equities

Market Map for Feb04

Posted: February 4th, 2009
Author: Mike Korell
Filed under: One-Day Market Map »

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So where is the S&P500 heading to take equities markets with it? After the post-Fed drop from the January 28 interim high, down and now sideways (or if you are a bull, you are looking for a rally). The Elliott Wave picture can be interepreted in a few ways - some are seeing the potential for another move up, while others are seeing the markets getting ready for another big move down. I've even been thinking that we could be in the throes of the last part of a triangle if the triangle's time frame was a bit larger, or that we could be finishing a small fourth wave before poking down to a fifth wave of a wave 1 down. So I don't think Elliott Wave alone gives definitive answers right now, and I do appreciate Tony Caldaro's 848 pivot which seems a good guidepost.

As for the "average investor," I don't see any need to be long the markets or get long the markets unless and until the S&P moves above 943 (and even then with cautionary protection) without making a new low first.

For projecting from here, let's look around: Terry Laundry is focusing on 746, which would test but not "break" the November 2008 lows. According to an article I saw linked at naked capitalism yesterday, Goldman Sachs is talking about an option spread involving (if my memory is correct) buying puts under 850, and selling puts under ~750, in order to play a drop that tests the November lows. Be sure to locate and read that article before proceeding on the basis of this limited information.

I'm not seeing much comfort from the cycles folks that I consult, and the Transports made a new low, so I'm not feeling bullish. There is a SentimenTrader index shows neutral for the near-term, and mildly bullish sentiment (based on investors being slightly pessimistic) for the longer term (few weeks ahead); and the ISEE All-Equities sentiment index dropped to about 97 at the end of yesterday.

So all in all, while there seem to be very good reasons to remain defensive, it also feels like there's a slowness in the markets while the S&P 500 remains above 800. Almost like a consolidation that's trying to avoid being the churning before another drop. So we'll just have to see if it becomes successful in doing so. VIX looks like it's been consolidating above its 200 dsma and my channel lines. I think the shallower lines I'm doing now in green are the right angle for VIX for current time frame.

Yesterday the QQQQ went to a .618 retrace from that 1/28 high so that was a potential trend reversal area. I keep having the sense that the S&P 500 may drop to test 800, then a small bounce again to keep everyone guessing - of course, that would also be consistent with the ChartsEdge weekly cycle chart for this week.

A long way of saying that I remain in the skeptical-to-pessimistic camp. Be careful out there, and happy trading!

*Update at 9:38 am: here's what Yves Smith showed within the links at naked capitalism yesterday: "Goldman Says Buy Puts Because U.S. Stocks May Resume Retreat Investor Village (hat tip reader Dwight). I'd tend to dismiss this as somehow talking their book were it not also for this: Put / Call Ratio: Top, Not Bottom in Equities Ben Bitroff." (Ben Bitroff's blogspot, Financial Ninja.)