S&P 500 Map Quest

Alright, I know what’s rattling through your little rodent brains just about now. Are we pushing higher? Will the bears assert themselves on Monday again? What are the odds of going short now? Is it too late to go long? Should I floss in the morning or at night? What’s the meaning of it all?

I can’t help you with any of those existential questions. But I did put together our treasure map for the SPX – let me offer my respective thoughts at each stage of this ongoing retracement:
[amprotect=nonmember] Charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
[/amprotect] [amprotect=1,13,9,12,5] Let’s start with A – which is looming ahead and represents a 38.2% correction of that plunge into SPX 1100. After a drop of this magnitude it’s not unreasonable to expect this as a minimum retracement level, so the odds of getting there are pretty good. Also note that this is near a psychological 1200 mark – retail cattle seems to love round numbers.

Now what’s also important about the 38.2% mark is that it is probably our line in the sand for expecting a conclusion of the current wave down. Please understand what I’m saying here – I am not referring to the medium or long term picture – this is mainly about a conclusion of the recent push down and a temporary low being in place. If we push above that the odds for this being a corrective wave of a higher degree will rise significantly. No, I’m not really counting waves here but I am using wave terms in order to convey the concept of momentum.

Which brings me to B – in the current scenario (and given the bearish sentiment across the board) the 50% is probably the first reasonable turning point of a bonafide correction. If we stop there it would be a bit early according to my calendar but heck – price is the ultimate arbiter in the end, right? Who are we to argue? (doesn’t stop some from trying)

If we get to B I very much expect a little snap back but I think the odds for a continuation a few days later are still pretty fair at about 50/50. So assuming we find ourselves around 1235 and I take on short positions I would most likely take profits around 1200 and expect to continue higher. Let’s address this in more detail if we ever get there – it’s still pure speculation.

Finally C – my favorite! At 61.8% it most likely would spell the conclusion of the current retracement and given a bit of whipsaw in between it could get us to my mid-September calendar mark. I very much would take on a large amount of lottery tickets at that point. The 1265 – 1270 range also represents a retest of the ole’ 2011 channel we were locked inside of. A failure here would send cockroaches squirming again and if things work out as expected trigger an acceleration to the downside.

And why am I looking to the upside in the first place? Many reasons – sentiment is one – momentum is another. And then there’s this little gem on Mr. VIX. That’s right – based on the rules (and unless all hell breaks loose before the close of the session) we’ll have ourselves a bonafide VIX buy signal today. And that means the odds for a rip higher within the next week just moved up a notch.

And don’t ask me about those VIX rules again – if you have use the search function on this blog. I’m serious – where I come from people get taken out at dawn to be shot for a lot less.

Have a great weekend 😉

Cheers,

Mole