Bears Yell "Fire" in an Empty Theater


"This is options expiration week, trading this week is notoriously difficult. I'm leaning bullish as long as I keep seeing confirming price action."

Let's clarify the SP 500 situation here:

The lows at 1101 were a convergence of fibonacci weeks, months, sentiment bottoms and VIX extremes along, with major insider buying all at the same time.

We rallied up in five waves from 666 to 1370 Bin Laden highs. At that level we had re-traced 78.6% of the entire 2007 highs to 2009 lows, a common turning point. Since then, we have had a 3 wave decline, also common for correcting a 5 wave move to the upside. The decline halted at 1101, an exact 38% fibonacci retracement of the 666 lows to 1370 highs. This is what I call a "fibonacci intersection." The same thing happened in July 2010 at 1010 on the SP 500, where a huge bottom formed.

The rally since 1101 was a 5-wave rally, this is an early BULL SIGN.

market trend forecast

A correction of this 103 point 5-wave rally would be normal, but the lighter the correction the more Bullish. So far the correction is only 23% of the 104-point rally with a gap fill at 1180.

Let's review:

13 fibonacci month's from the July 2010 bottom to August 2011 bottoms

Seven Times in history, we had the SP 500 double in a short period of time, and in every case it retraced 27%40% of the price movement from lows to highs. We just retraced 40% of our SP 500 double, historically a very high retracement.

At 1101, we had 38% fibonacci ABC correction of the Bull leg from 666 to 1370.

In 1974-77 we had the SAME pattern, which I outlined for everyone last week.

Thirteen Fibonacci weeks correction from the Bin Laden 1370 highs to 1101 lows. 1370 was a 78% fib of the '07 highs and '09 lows. 1101 is a 38% fib of the 666 lows and 1370 highs. That's what I call a Fibonacci intersection. The same thing happened in July 2010 at 1010 lows.

Insiders with massive buying, corporate buybacks announced.

VIX at extreme levels

Fear gauges at extreme levels.

Five-wave impulsive rally from 1101 to 1204 ensued. . .now a pullback is due. Same thing happened last summer 1010 to 1130, pullback to1040 in three waves, then another five waves up.

What am I telling everyone?

Stop yelling fire in an empty theater. . .

This is options expiration week, trading this week is notoriously difficult. . .

The Bear case is crowded, the Bull case is not.

I'm leaning bullish as long as I keep seeing this type of confirming price action.

I'm watching 1165 on SP 500 as a pivot low worst case, but as long as we see price action above that I like the set up for a while yet on the long side.

(But Dave, the textbook for Elliott Waves doesn't agree with you. . .good, that's why I use other indicators)

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