Market Update 6-16-09; A turn for the worse

Just a week and a half ago I was more bullish than bearish. And now I am more bearish than bullish! I will explain why below, but first some quotes from my June 4th market update post. I will follow that with a detailed explanation of why I have switched back into the bear camp giving you some insight into how I come up with some of my forecasts and why it seems I may flip flop so much. (I know some of you may not understand all my technical jargon, but hopefully it will give you some insight into how and why I make the decisions I do). I have a chart to help explain as well.

Quotes from 2 weeks ago...
"There is not really a reason to necessarily expect as large a rally as I previously laid out. The markets seem to have completed their first pattern up early this week with a good correction on Wednesday, possibly still playing out thru tomorrow (or completed Wednesday afternoon). What this could mean is that the first wave up is complete and the 2nd correction down is nearing completion (out of a total of 5) awaiting a 3rd wave up tomorrow or Monday."

"I will need to be nimble the next few weeks though, as this thing could turn on a dime, and when it does, that is all she wrote.

"The safest bet is to buy with a breach of $950 which if I am correct could come tomorrow or Monday/early Tuesday (I went ahead and bought because of personal reasons and because I know at which point to sell if I am proven wrong--right now $900). If $950 is overtaken then all liklihood we are in the powerful 3rd move up and price should not intrude below $950 until this summer rally is over."

So, looking back at these comments, they were pretty spot on with Thursday, the 4th a big up day and Friday a pull back just breaching $950 briefly. Some choppiness ensued Mon/Tues/Wed which I suspected was a 2nd wave correction, and then Wed midday and Thurs took off in my suspected wave 3 up above $950 (the move had a clean 5 waves up). All is well, so I thought. A correction after that move up was expcted, which occured Friday, the 12th, with a move back up by the end of the day. So far 3 waves up, two nice impulsive ones with one corrective choppy one in between--what I expected. But something happened over the weekend...the markets gapped down Monday morning with a continuation of the correction instead of up in a continuation of the 3rd wave up, and quickly made new lows below $927 which is possibly a major breaking point of the bull. At that point I became more bearish than bullish. With the bust of $927, the count is sufficient to call a top at Thursday, June 11th's $956.

The next question is will it be the ultimate top of the summer rally or just the end of the first major move up...that is still too early to call, but after today's completed 5 waves (see chart attached - a beautiful 3 day move down, actually), it is very likely the next few weeks will have at least a downward bias.

I have attached 2 charts, one is my normal wave count and expectation chart and the 2nd is a zoomed in view of the last week with what looks like a very clean 5 wave move down from a new high of $956. This implies the start of something larger to the downside. I will know more once the correction of the 5 wave move completes later this week.

Summary: Some major damage was done to the bull case over the weekend with prices not continuing their trend up from $927. If today's low was just put in at $912, then this first 5 wave move was $45 points which would put the initial target somewhere south of $890. I will know more as this down move plays out.