As belief in equities markets rolling over grows, Elliotticians and other analysts more seriously debate likelihood of new lows

The movement in the S&P 500 and other equities markets today was consistent once again with the intraday map provided by ChartsEdge, as well as the projections and levels provided both by Andre Gratian as well as (separately of course) Elliott Wave methods including those of Tony Caldaro. I've provided a sketchy view in the chart at right, in which the rise yesterday would be the "a" wave of a second wave pullback up, and today's action being the "c" wave up after the intervening "b" wave down. The "a-b-c-" assuming it completed a second wave, then opens the door to a third wave down. There may be some counting methods that would look for the next wave down to be a 5-wave "c" instead of "3". For now, we've got the "max pain" numbers and overall chart positions that signal to use that the continuation move is to the downside.

What happens after that is what many are beginning to think about, and can definitely affect you depending on how you choose to posture your positions. Some people who really believe all we may see is a mild or moderate pullback, are talking about hanging long through it. That's pretty complacent for a couple of reasons! One, there are legitimate predictions calling for either a very deep pullback, losing almost all the ground gained since the March lows, or even losing that support and heading to new lows (one example being the 578-600 area I've discussed here). Two, even if there's just a mild or moderate pullback, you cannot assume it becomes the right shoulder of a bullish reverse head and shoulders pattern - people are talking about an "L" shape rather than "V" shape "bottom" that could see positions taking a loss for now, and then turning into "dead money" for months. If you have a significant possibility of seeing no upside return for months, you can even do better in an FDIC-insured CD!

Earlier today, I posted an intraday "charts roundup" at my Unbiased Trading - No Bull, No Bear, No Bias (tm) [or "UBTNB3"] blogspot so you can see how a variety of markets and indices are looking, including equities, the banks, the transports, retail sector, biotech sector, gold, the dollar and euro and yen, and oil. It's interesting to see the areas of relative strength and weakness. Also, more sectors have begun to lose their 20-day moving averages, and a few have lost their 50-day moving averages. In many cases, the move up yesterday and today is simply a retest of moving averages from below, which means those moving averages are likely turning from support to resistance.

Similarly, the VIX which broke above its downtrend channel, today tested back down to it as equities made their tepid rally. With the likelihood that equities drop into opex tomorrow, and even though there's a weekly tendency for VIX to weaken on Fridays, it isn't unreasonable to expect that the VIX will move up from that test back to the broken trendline along with equities getting pushed back from moving average resistance.

There are reports that Glen Neely of NeoWave, who has his own views about Elliott Wave, has gone public with a "public service" (publicity) press release saying the markets will roll over to new lows. Hey, welcome to the club! He certainly isn't alone in seeing that, although he's also putting himself out there firmly in that camp. Come to think of it, it's now fashionable again to be bearish, although I agree that many are only thinking of it in terms of a mild pullback. Then there are also reports that one McHugh is trying to find a Hindenburg Omen that will signal a similarly sharp, nasty drop down to new lows. In Elliott Wave parlance, we'd be thinking of that as a larger third wave down as the extended middle component of another leg down. Whether that's in a wave 5 down (as I've tended to refer to it, and also Allan at his AllAllan blogspot (in the list at right)) or a Primary wave C as Tony Caldaro refers to it in his Objective Elliott Wave (featured in the sites of interest listed at right, and links to his daily updates are in his site feed below that sites list).

Of course, Tony's OEW work allows for the possibility that the rally hasn't totally ended and that we'll see a pullback followed by one more set of "abc" waves to complete Primary B, before we see Primary C. I respect his integrity in maintaining that possibility as an alternative count. And as he points out, while we position correctly for a defensive posture for whatever level the markets seek on a leg down, we can and will be looking at the wave structure and indicators to clue us in whether or not the markets get support instead of crashing to new lows.

Others will be looking at cycles projections such as the Bradley model, Chris Carolan's Solunar calendar and similar work, as well as the 4-year cycle, Dow Theory and the like. For example, the Bradley model points not only to another set of significant turn dates into and on July 14-15, but then to the probability of equity markets rolling over to what may be new lows - or just a very, very deep correction - by the fall of this year. Of course, this is all material that we've really covered here at various times, so readers are likely familiar with these scenarios.

I've included one of my monthly charts of the SPX below - it gives a closer view of a large downtrending fork in this index. You can see that the trendline from which the SPX bounced in March will intersect with the 600 price line right about in June 2010. I've mentioned before that from a Fibonacci perspective, good times for the index to get to new lows would be either this fall (and/)or mid-2010. So it will be interesting to see if price and time get together for 600 in June 2010. Then again, more bearish views would be looking at the other, lower trendline on the fork to see if the index will dig lower to that line.

(If you look at the Xtrends website for which I provided the link at my UBTNB3 blogspot, you'll see that the index already did move under very long-term trendline support. So unless the index is ready for a very large bullish diagonal triangle upward, it would seem the long-term trendlines won't prevent another move lower. Alternatively, one of the more bullish views we can look at if and when the time is right, is that the index completes whatever wave 5 or wave C lows it needs to complete, and then is finally ready for a much more bullish huge wave up whether that turns out to be a diagonal triangle or a huge "flat" wave B that could theoretically retrace 90% back to the all-time highs! So it's quite possible for the index to surprise many with new lows, and then turn around to surprise many with a massive rally.)

Scary stuff folks! Which will provide a great basis for deeper review once again this weekend! But first, we've got to let the week play out and get through opex Friday. So have a great evening all!