Thursday 9/30/10 wrap up

The sell off from this morning's highs is clearly a 5 wave impulse, which signals a possible downtrend in the making.

A flat style correction was one of the possibilities considered in last weekend's update post, and it explains the action this week quite nicely.  If that's what we're getting, then we are most likely in the "C" leg of that pattern which should be the strongest, thus there should be sharp follow through selling tomorrow.  If this is in fact a correction to the September rally, then a .382 retrace would be in the ES 1103 area and a .500 retrace comes in at ES 1090.  Es 1090 has been an important area of support/resistance in recent history.

The daily Trend/Osc is still in bull mode but only because the Dynamic Oscillator remains above 80.0.  Prices have closed below the uptrend line as of today.  So the caution light is flashing.

The hourly Trend/Osc is also flashing yellow with prices hovering around the uptrend line on that chart. The Dyn Osc is already in sell mode with readings below 80 and in a down trend to boot.  Putting this all together today I hedged the long ES's with some options around 2 PM with the ES trading a little above 1140.  If we do get a Trend/Osc sell signal overnight, as seems likely, then the ES position will be reversed from long to short and the hedge options will be retained.