Thursday, January 15, 2009

Update…

The math of this move is targeting the 800 area of the S&P or the 7,850 area of the DOW. Here’s what I’m seeing now, please follow along on the 5 day, 5 minute SPX chart:



Yesterday’s bear flag broke down and it was worth about 38 handles from the break of the flag which happened just above 840. If you subtract 38 from 840, you wind up just above 800.

This morning we descended down to 820 which is relatively strong support and we COULD bounce higher from here, but look at the math on this smaller flag that is forming. The top of the last leg down began at 850 and descended to 820 or about 30 points. If this flag climbs up to about 830 and then breaks lower it, too, will be targeting the 800 area.

It’s funny how the math works. Flags tend to develop at Fibonacci percentage points, in this case 50%. These Fibonacci relationships are found throughout nature and throughout the markets.

The VIX is up very strongly again, rising 10% up to the mid 50 level. Volatility and Fear is returning. Caution is still advised… the best place to get short this move will be on a wave 2 retrace if this is wave one. Wave 2’s tend to retrace a large portion of wave 1, so that might offer a better short entry opportunity when it occurs – and it will.

Nate

PS - no Econotunes for this post, sorry to disappoint ;-)