Afterhours last night the futures ran up to 2140, which looks to be around the 38.2% Fibonacci level. This morning they are back down, which “so far” appears to be making a “higher low”, or a B wave down with the rally up afterhours being the A up. This wave pattern is only valid as long as yesterdays’ low isn’t taken out. If that happens you’d have to wait for it to bottom and start its’ A wave up and B down before going long on the C up. But if the current low isn’t broken early this morning after the open when the selling pressure is the largest then we could see a nice C wave up start within an hour or so (the noon time period will be critical to see yesterdays’ low hold).
If a rally gets going I would NOT be too excited. There are a lot of bulls trapped now and even if this turns out to be some kind of C wave up in the futures it will only be an A wave up on the SPX Cash… meaning there will be lots of longs selling at each resistance level keeping the move up from getting going as strong as most C waves do.
Resistance is now prior support, which is the 2145 area again. But prior to getting up there the bulls will have to retake the 2135-2140 area where there’s resistance as well. On the downside we see that falling trendline where the market hit and slightly pierced yesterday before rallying back up. It was around 2125 at that point (the low was 2121.75) and today is down as low as 2115 if we break the current low and drift down all day into the close.
My thoughts on what will happen today is some kind a triangle will form between yesterdays’ 2122 low and the afterhours high of 2140, whereas we don’t take out the low after the open (just make a higher low) but on the rally back up we fail to get back to 2140 either (making a lower high) and then go back down again, up again, etc… where the bulls keep looking for that strong C wave up to exit at (which doesn’t happen) and the bears want the same move as well so they can short it.
This triangle fools them both and sets up the close today with both bulls and bears wondering about what will happen on Thursday. So while it will look like the start of a C wave if we get going with a rally right after the open I suspect we won’t get past the afterhours high of 2140 before topping out and moving back down again, but the move down should NOT break the current low. Again, it should make a higher low and keep doing these up’s and down’s to make a triangle by the close.