For the first time in awhile, we saw the indexes take off and run for about seven days. Imagine that!  But all it did was bring the markets up to big picture resistance…

But more importantly, this run has also hit an even bigger resistance level not shown: the bear market lows of 2002. We broke those to the downside a few weeks ago and ran right back up to that resistance level. So there continues to be multiple resistance levels as you can see in the charts below:

With both of these indexes you can see they are overbought and pushing a resistance level for the time being. For All About Trends, before we can begin to make the case for the market to go higher, we must first work off this oversold condition by either completing a Pull Back Off Highs (POH) pattern or consolidate sideways.  At least that’s what we need to see on the daily charts.

The 60-minute charts are another story – that being they are short-term oversold.  This suggests we COULD make another trip back up to the highs, at least in the very short-term.

As you can see, the full stohcastics are in the deeply oversold territory. One can also see that off the lows we’ve pulled a 5 waves up (abcde) Elliott Wave affair.  So the big question at this moment in time is: Was that it? 

After all the daily charts show major resistance levels being hit OR do we still have a little bit more work to do to stage a full blown ABC up as shown in blue.  One thing is for sure as you can see from the A? down to the B? that you have the makings of a Pullback Off Highs (POH) developing. The same holds true for the OTC Composite Index below.

In summary:  Going into this week we come away with asking Was That It? Or are we going to build out a larger ABC up, then down.

While on the subject of Waves, lets take a look at a few…  

When looking at the three main indexes we come away with a potential divergence. The divergence comes from where the OTC Composite MAY have completed its five waves down of the sequence but the Dow Industrials and S&P 500 may have one more run back down.

IF this index holds true to form and traces out a five waves down to end the first leg of this bear market, then a retest of the lows are in order.  However, don’t fall into the trap of “well gee, if we are going to retest the lows and I go short right here and we do retest the lows I will make X dollars.”  The trap with that thinking is that you then attach yourself mentally to a particular outcome. And if that outcome does not transpire, you’ve set yourself up for disappointment. This is what Kenny Rogers meant when he said “don’t count your chips till the dealing is done.”  
 
[Note: In order to conserve space we won't show the S&P 500, but it has that same look.]

As you can see, one could say we’ve completed five waves down off the highs. The 5th wave MAY have turned out to be a truncated 5th wave, which may have shown up in the form of a double bottom with a shake out low. HOWEVER, even if that is the case, this index is still big-time overbought as shown by the RSI and Full Stohcatics settings (Red Circles). So even if that was it, expect a short-term pullback off these levels.  

When looking at the true market bottoms of the Great Depression and the bear market of 2000-Oct. 2002, it took 4-6 months. And you didn’t know that was the bottom for at least a month after that. While history doesn’t always repeat itself, it often rhymes.
 
In summary, we need to see some sort of pullback off highs pattern develop in the overall markets, which will reset our indicators.

Sincerely,
David Grandey

David Grandey

David Grandey is the founder of All About Trends, an email newsletter service revealing stocks in ideal set-ups offering potential significant short-term gains.  A successful canslim-based stock market investor for the past 10 years, he has worked for Meriwest Credit Union Silicon Valley Bank, helping to establish brand awareness and credibility through feature editorial coverage in leading national and local news media.

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