Triangle trouble…

It appears that after breaking upwards and retesting ($INDU) the “Point of Recognition,” the markets will be looking at least modestly higher.  The $NDX jumped above its “POR” and hasn’t looked back.  Unfortunately we have not completely broken out of our resistance zone, and judging the confluence overhead, now would probably not be the best time to be creating new long positions, rather waiting for a big break above 1250.  From there, we can assess the wave structure, but unless a specific group jumps out at the lead, we will likely be heading lower in either wave D of a triangle, or wave 3 or and ending diagonal.  The ending diagonal potential, while secondary right now, cannot be taken off the table until we measure out the following decline.  Once this triangle traces out, we will be looking for about a 2500 point move lower, somewhere towards 6500 ($INDU) at rough guess.

Resistance levels are overhead, and we remain divergently over-bought, but it appears that to satisfy ANY corrective pattern, we would be about 1300 in $NDX.  We will likely get a push lower, to the upper boundary of the gap, or perhaps to fill it, and pushing down would be a good time to start looking upwards for nearly 125 points ($NDX) at this point.

We have been watching the financials as well through this, and they remain well below the Nov. peak about 16.50 (XLF).  XHB however appears to be tracing out the finishing touches on a nice bearish wedge, that will likely be the c wave of C (i.e. last part or 3 movement of 5 (next being down, then up again)) of a triangle.  Since these are supposed to be two leading sectors, we will keep an eye on their movement over the coming days.

The $VIX is tracing out a nice triangle, that once breaks, SHOULD (please!!) hit triple digits.  It is kinda tough to measure $VIX targets, especially with triangles, but I am going to use both total distance, and daily closes.  If we push to the lower side of the triangle, we should be looking at 55-50.  However, should we fall short of the lower boundary on the final push lower, we could be looking at 110 (60 (roughly) + 51 (triangle total) = 111).  There are other ways to measure the triangle of course, but 100-110 would be a good target.

All in all, we are looking modestly upwards, seeking to satisfy yesterday’s levels around 9100-9300 in $INDU, and up to 1300 in $NDX.  From there, we should get a couple hundred point down move ($INDU), before the final up/down/up {A-B-C} of the triangle.  Should this point coincide with the $VIX at the bottom of its triangle, we will have the best short entry for the next 3-6 months.

Skål!

This entry was posted on Monday, December 8th, 2008 at 9:23 pm and is filed under Market Outlook. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.