The First Indications

Interesting juncture here. Yesterday the Dow, S&P 500, OEX, NASDAQ, and NASDAQ 100 (NDX) reversed from their highs and made what appear to be 5-wave impulse patterns to the downside. Only the NDX looks as if it wants to break the pattern to the upside. The S&P 400 and the Russell 2000 have not made (at least in my estimation) good looking impulses down as yet.

These patterns bear watching today, as they could be the first indications of a turnaround. I will not be happy about it because I'm heading off for a snowmobile trip to the Great White North and will miss Friday's session. The market always seems to move when I'm away from it. So I kind of hope these patterns fail and that these indices gather some steam for another weaker high.

The first area for the S&P to shoot for would likely be the 1340 zone. It's a congestion area as well as a 38% Fibonacci level. To the upside, yes, 1370.58 still sits untouched and unconfirmed. Reminds me of a song by Jim Carroll who was known as rock's Rimbaud:

And they can't touch me now
I got every sacrament behind me
I got baptism, I got penance
I got communion, I got extreme unction
Man, I've got confirmation

Catholic Boy, by Jim Carroll

Sometimes when the market gets to a point when it feels like both bulls and bears are confused, I will try to trade with the trend until the market proves to me, usually by breaking an Elliott rule, that it's had it. That way I can hope to appease the trading gods. So I bought SPY 136 calls yesterday afternoon with a stop at 1357.24 based on the wave pattern. I was very nearly stopped out as the market kept falling (the stop was also an intraday 38% Fib level -- not the best spot) and kept adding. On the ensuing bounce I scaled out almost everything down to one last call. Why I was not getting short up around 1367, I don't know. It just didn't look complete.

If I have to sacrifice a call option in order to get a better sense of what the market want to do, that's okay. It will help me trade bigger when I have more conviction. Something tells that's coming soon.