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Tuesday, December 7, 2010

Tuesday 12/7/10 update

4:10 PM CST
On ES/SPX, looks like the top is in to the rally that started last Tuesday.  The question now is how much of a correction will we see?  The answer is it depends.
We have been in Intermediate W5 of a bull run that started in early July.  Intermediate W1 ran 23 days and covered ES 125 points.  So far, this rally has gone 6 days and covered 23 points from the low of Intermediate W4, which was a triangle.  So it's fair to think that Intermediate W5 is not yet over, and the top today was only the end of Minor W1 of Int W5.   In that case, the selling should be limited by the lows of Minute W4 (green), which were in the ES 1213 - 1220 area, as per the highlighted section below:

If however we've seen the extent of Int W5 with today's top, then we're looking at a potentially much more serious bit of selling.  Targets would be the fibonnaci levels between the early July lows and today's highs.  The low on Jul 6 was ES 1002.75, today's high was ES 1235.00, a distance of 232.25 points (wow).  Fib retrace levels are thus:
.236 = 1180.25
.382 = 1146.25
.500 = 1119.00
.618 = 1091.50
.764 = 1052.50

as per below:

One final note.  On the way up the ES 1170 area was significant support/resistance, so if we are going to see a deep correction I would expect that area to once again come into play.

On Silver, there was a sell signal on the hourly Trend/Osc late today.  I've been watching SI closely for a top, but the signal came at the end of an hour of deep selling so I'm holding off on a short there pending a decent retrace.  If one doesn't happen I'll stand aside.  I'm always weighing risk/reward, and that equation wasn't favorable enough for my liking when the signal was generated this PM.

9:25 AM CST
Couple of possibilities on ES currently:

Third possibility is that Intermediate W5 (purple) will extend, in which case we're only seeing last phases of Minor W1 (red).
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