Sunday, March 15, 2009

DoctorMad - Welcome to Wave 4…

The General is looking over all the battle maps this weekend. For the uninitiated, he is speaking about wave 4 up/sideways of wave 5 down. The /ES are the S&P futures, the /TF are the Russell 2,000 futures (RUT), and the /NQ are the Nasdaq 100 futures (NDX)…
Hopefully you did a little better than me and caught the corner removing the last of your bear troops and catching at least part of the bull offensive. I may not have caught the turn, but the discipline of sending troops home each step of the way during the wave 3 left me with just a few troops caught in the bull rampage and ready to redeploy for a 5 of 5 in a major way as next week approaches.

The charts below show the adjusted wave 5 momentum channels for the major indices along with fib retraces from both the Jan 6 and Feb 9 highs. I've ovaled in a couple of target areas that if reached I will be looking to redeploy bear troops at that point in the battle field. 770 is also the 02-03 bear market low as well as an important pivot going back to the late 990s. If the bears manage to pierce that level, 800 will be the next important trench the bears will fall back to. If the bulls manage to retake the 800 Maginot line you have to adjust your battlefield bias towards the bulls in the medium term as they will control that important trench.

If front running isn't your thing then I've also included 20 day charts showing the short-term momentum the bulls have right now. As long as the bottom trend lines holding up these channels offer support, the bulls remain in control. Any bear troops you deploy ahead of a break have the potential to get ground right up at the same rate bear troops got hammered last week.

Finally a 2 year ES chart showing where we are in the big picture. Last week's rally looks like the blip it was when scaled back to these levels.

- DoctorMad