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November 05, 2006

Good Vibrations
by Dominick

The Oct 29th update stated:

So where do we go from here? SPX 1360 was a Fibonacci target and it was met. Now we have Elliott patterns that have taken over. Friday should have begun the first part of the correction. We either finished or will finish an 'A' wave early next week. From there we expect a correction of that move, then a roll over once again to find support on or around the same 1360 area. But if we've topped, there won't be support there. For the sake of thoroughness, Friday's drop qualifies for the start of either a zigzag or triangle, leaning towards the zigzag so far. After this correction, I see a bit more of an advance but it'll be choppy with lots of ups and downs.

Going forward, keep an eye on November 1st, when some mutual funds might need to do some trading.

Choppy with lots of up and downs? The week began in rally mode Monday, but then dropped to a lower low only to reverse and put in a double top at the day's high. We saw mutual fund selling into midweek as managers consolidated for the new fiscal year. The low for the week on the SPX came in at 1360.98, which I'd definitely consider that a hit. I mean, it seems like pretty much the whole market literally read last week's update!

By Friday the bears were out and talking the "C" word again, but after rallying from 1220 to 1390, why worry about a pullback to 1360? Don't get me wrong, I'll turn bearish when the time is right, but right now I'm just glad I wasn't the first in line to go short back in June. The bear call is tempting, but this market might still be carefully moving forward 2 steps, and then back one. We're still vibrating around the hidden Fibonacci level at SPX 1360, and if this becomes support, we're definitely going higher. In fact, I won't short this market as long as we're above that level, to avoid risk of a final blowoff.

Next week is the election and this market might just trade a bit differently. With 1360 still acting as support, I'll allow for additional gains, with first target for the SPX at 1404.25. Otherwise, I want to see a clean break of 1360 and a retest from underneath. If that happens, then we can start talking about a top.

We're also following the Dow Jones Utility index, who's chart has had some very clean moves. According to our count, this week was a pullback in an internal 4th of a wave 5th thrust from the earlier triangle, with excellent targets just above. I always entertain the possibility of a collapse, but probability still favors the Utilities making a move higher and risk reward here is in our favor since we'll know a few points from here if the market decides to disappoint. Going into election week after several consecutive down days, we're looking to see support come in within the next 10 points. If not, then we'll position ourselves for a total breakdown.

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Also, click here to see how perfectly my hourly Trend chart caught this week's high in the S&P. If you like what you see, send the links to friends!

Dominick,
a.k.a. Spwaver
TradingTheCharts.com

This update is provided as general information and is not an investment recommendation. TTC accepts no liability whatsoever for any losses resulting from action taken based on the contents of its charts, commentaries, or price data. Securities and commodities markets involve inherent risk and not all positions are suitable for each individual. Check with your licensed financial advisor or broker prior to taking any action.

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