It was the week that many never wished was. When all was said and done, the Dow Industrials for the month were down 3.46%, the S&P 500 down 3.7%, and the OTC down 5.37%.
While the indexes were down, everyone knows it felt worse than it was and they are right because under the surface it was much much worse with many growth and momentum names taking headers to a major degree.
Anything that everyone had to have in December and the first week of January fell off the face of the earth. Folks that’s always the way it is with hot money names which is where the most emotional money resides all the time anyway.
We happened to get a little bit of TV time on Friday after the close and you could tell these people were saying one thing, but it was if all the while they were talking they too were not even believing what they were saying. You could sense it and feel it. Folks these people will bury you if you listen to them. We couldn’t believe the gibberish about how earnings were great across the board and blah blah blah but ahh it’s the quality of the earnings. This is what the market sees too.
The big question on a lot of peoples mind is that of:
IS THIS IT? THE BIG ONE AGAIN? OR JUST A NORMAL CORRECTION.
The right and truthfull answer is we don’t know and neither does anyone else.
At the least IF this is a normal correction we ought to have 3 waves down (ABC).
Below is an example of what those look like. The chart below is in a 60 minute time frequency though. That all doesn’t matter either though because our patterns take place in all time frames and frequencies.
If this is the start of something more? Then 5 waves down are the order of the year just like off the Year 2007 highs on the SPX as shown below as an example below.
One thing is sure about each, they are wealth destroyers and wealth creators depending upon WHO YOU ARE and WHO YOU CHOOSE TO BE. Those with allegiance to the traditional wall st method of buy and fold? Consider yourself warned.
Now that we’ve seen some examples, let’s look at some current charts of the indexes:
In shorter term time frequencies there is a good possibility that we are near or very near the end of an A wave down if you will. IF this is the case then here comes a B Wave up (refer to example above in our first chart of newsletter). Monday and Tuesday may still be that of chewing around and highly volatile as the nano term charts still need a little work, but they are super close.
So what happens after we get a B Wave bounce? New lows yet again for our C wave if this is going to be a normal correction. A retest of the November lows ultimately wouldn’t surprise us. There is also a good possibility that the whole move down off the January. highs traces out ABCDE (5 Waves down before all said and done). But we’ll take it a step at a time.
If it’s a major trend shift? Well that could ultimately take us to the 50- 61.8% Fibonacci retracement of the whole run off the March 2009 lows which is 908 to 850 over time in the S&P 500. As for the OTC Comp. that’s 1795 to 1670 respectively, if not more according the E Wave. We’re not saying that’s where we are going, we are saying according to Fibonacci retracement theory those are the levels to be aware of.
In Summary:
We said it before and we’ll say it again, we are in the zone for a B WAVE bounce. After that, hold on to your hats as the next leg could get nasty (to those long only the markets). Either way after a bounce it’s another leg down. In the bounce you need to use it to prune long positions and if you’ve got a 401K heavily invested in equities you may want to take a breather by moving some to the money market side of the account. If your employer matches you, you are already doubling your money the way it is folks. You can always get back in at a later date. Again off the lows of March, the markets have put on a historical run of huge percent gains. So now is the time to protect it.
On a side note upon speaking with a few in our circles, each of us drew the same short term conclusion about the next few days. Everyday last week we saw the classic pop and then drop. Everyday it was the same thing. What really needs to happen in the short term is for the market to open down, instead of up. Call it a shake out low, trap door or whatever you want, but it sure seems that as long as the indexes open on an up note, they are going to get sold off. That said it sure would be nice to get it over with and have Monday to open down, which is actually what we want and truly need in order to get a B Wave bounce, snapback rally, dead cat bounce call it whatever you want, started.
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