Will bottom pickers in the S&P 500 be rewarded after today's rally?

Bottom picking may be an art, or a science, an extreme sport - or an extremely dangerous sport! Does today's rally give the "all clear" for those who picked the bottom either Friday or yesterday? Now I grant you, I was pointing out here on Friday afternoon and over the weekend that the chart pattern was signaling we may have neared the end of a significant move, and the technicals such as the McClellan Oscillator showed noticeable improvement. But is this enough to confirm we've seen the worst of it?

Some people seem confident that the equity indices do move higher after today. Okay, that may well be the case - ChartsEdge forecast showed it too, moving higher this week into late Thursday / early Friday. If that's the case, I marked an area where Tony Caldaro's 934 pivot (which resonates to 941, remember that number), and a possible prior 4th wave (though not sure Tony has it counted that way - maybe it's just my view), and at least one unfilled gap. Is it a guarantee? Not in my opinion - but, sure it can happen. Given the other things I show below about sentiment and technicals, and the weak OBV on this hourly chart (below), and the possible count, we could have seen an ABC that equals either a larger (A) or W, then a pullback corrective (B) or X, then the remainder up as (C) or Y. OR - IF it is an impulse (I'm not really in that camp, but okay let's see), then I would think the measurement of the 1.618 could have us seeing a 4th wave consolidation tomorrow, unless the wave wants more such as a 2.618 - that would be more "fitting" for an impulse versus the ABC type counting I mentioned.

If you're not following this Elliott Wave jargon, don't worry. The essential point is, whether the move upward is only a bear market rally and if so, how much before the market rolls over again? My primary thought is that we came close to one major support level and the market is just in the early stages of decelerating its slide, before it tests a bit lower to confirm whether or not we get the significant support for the markets to turn positive again.

If my primary thought is right and we get either (B) or X pullback/consolidation, then (C) or Y up, that can imply the indices roll over again to lower levels to test that significant support. The ChartsEdge forecast for the week shows a dropoff Friday afternoon. Of course, we're supposed to use the ChartsEdge forecasts for cycle timing and not really for trend direction, so it's just something to keep in mind.

I also posted other charts related to all this, at my UBTNB3 site (you can use the links at right to get there) for those interested in more details. Bottom line - the market internals such as advancing versus declining volumes, and new lows ratios, have been improving; but sentiment and technical indicators don't tell us that it's safe to wade in on the long side by buying big positions yet for the long term.

Instead, the type of action we're seeing is, in my opinion, rather consistent with tomorrow being Weird Wollie Wednesday* and a lot of large market players rolling over contracts, and positioning for options expiration next Friday. In fact, just on a common sense basis, Tony Caldaro's idea about re-testing to the 734/741 area is a reminder that we remain under the 2002/2003 lows and the lows of November 2008 - so market confidence is premature. Here's a chart with some markings I made commenting on levels to look for over the next several days:

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WWW or Weird Wollie Wednesday (NOT world-wide web, LOL) = www (Weird Wally Wednesday) is the Wednesday before the week of options expiration...... Sometimes spelled Weird Wally Wednesday but that is a typo, because it's named after the man who discovered the importance of this day, Don Wolanchuk.

More explanatory is this information at Options Expiration Week (a site I don't know but might have good info generally about options): "'Weird Wollie Wednesday', created by Don Wolanchuk, references the Wednesday prior to options expiration. The observation made by Wolanchuk stipulates that this day is made up of manipulated price action which is primarily related to the faster deterioration of options premiums during the week prior to options expiration; many traders are rebalancing and rolling their options forward. Using WWW as a guide, it is not uncommon to see strong moves down in the market place on the Wednesday prior to options expiration week."

Well, I don't know if I'd use the word manipulated, I think it's fair to say that the action can be somewhat artificial in that it's less related to what investors or traders think the "right" price is and more to do with group action of rebalancing the rolling options forward. Similar to futures contracts rollover time. So - just a hypothetical here - if many having been holding short positions, they might want to close those out for the current contract (something like a buy to cover), then take short positions for the contract(s) that expire farther in the future.