This post my BMF has been promoted from StockTock Social.

November 18th

Today’s action was sideways. We almost tested our bottom (again), but didn’t quite get there. We stayed within the channel. Today’s late day rally was nice to see – it countered yesterdays’ late day selloff.

I’m noticing a possible TOP in DTO on declining volume. It’s looking *very* spiky and wave 5ish. Conversely DXO is at a new low on major volume for the last month. We may indeed be ready for our commodities relief rally.

I’m viewing a possible MAJOR WAVE 3 market bottom at this level… give or take a few days. I see *no* confirmation yet, but I’m feeling like we’re going to finally stage a healthy rally.

The SDS/SKF Proshares appear to be topping. The 775 target was only 50 points below where we got today 825. I’m not sure how bad the shorts want that 50 points, but the risk/reward simply is not there. Shorts don’t expect *some* sort of rally off of the 2002 support level… not even a half-hearted attempt? Good luck shorts.

November 17th

Long term

My long term count hasn’t changed. I feel we have not finished MAJOR 3 down. Wave 3 is typically the longest and steepest of all waves. It’s the one that wakes everyone up and punishes those who stand in front.

There are two major camps when it comes to what happens after MAJOR 3. It’s very important to understand why.

The market moves in impulsive (5 parts) waves. Corrective waves go against the MAIN trend and are made of 3 parts.

EWT likes to identify which waves are impulsive and use these clues to piece together the overall form.

The first camp believes that the market (as a whole) has been in a DOWNTREND since 2000. We were correcting against the main through 2007. This correction is labelled ABC – we are now in the final leg down called C. This wave is impulsive and will be a total of 5 waves down.

The second camp believes that the market STARTED its downtrend in 2007. There is a very important distinction. First, the market corrects in ABC moves. The first corrections started in 2007. So far we’ve seen A and B. We are now in C. This wave is also impulsive and will total 5 waves down.

They sound the same. The first camp is waiting for MAJOR 5 down to complete for the market to turn positive. The second camp is waiting for the MAJOR 3 – to complete. They’ll label this C and call it MAJOR A. MAJOR B will kick in and WAVE C down starts sometime next year.

The first camp is more bearish for the short term, the second is more bearish for the long term.

I’m not sure *which* camp I lean towards. 2002-2007 was slow growth. 2007 felt like a real market top to me. 2002 seemed more like a wave 3 top than a wave 5 top.

The thing in common is the following:

1) Once MAJOR WAVE 3 completes we will rally
2) The length of the rally will be more bullish for the 2007 top crowd (up to 50% retracement of entire drop)
3) The rally will be temporary
4) Lower lows are in the future

Short term

We’ve been downtrending for a *very* long time. In my opinion we are close to a MAJOR 3 bottom. My short term outlook changed last week to allow for a nice rally to the 980-1000 area. So far, it looks like it is questionable.

Why? We keep posting impulsive waves down. The rally last week on Thursday *could* be labeled a wave 2 up and we’re in the final legs down on minute wave 5. For more information on counts, I’ll defer to DanEric.

I’m *very* cautious when we get into wave 5s. They’re nasty. Typically they have the *least* volume, post negative divergences on RSI, move erratically. Once they are OVER there is a HARD reversal. People who *play* in the realm of Wave 5s are still at the party when the cops show up. It’s very typical for a wave 5 to FAIL… they’re typically the shortest of the waves as well.

The safest thing to do is to sit out wave 5s. Realize that its time to get ready for a possible reversal once things are complete.

So, my short term count shows us somewhere in a *possible* wave 5 down to complete. It also shows us channeling in an ABC fashion since our first rally to 1040.

Personally I feel that shorting the market in a wave 5 is beating a dead horse. I’d rather be in cash waiting for a setup on the reversal than worried about being whipsawed when the reversal kicks in.

I mentioned last week that commodities are likely to start the next rally in the market. It’s my belief that when the USD gets a pullback, commodities will rally.

Of course this is dependent on the USD actually *getting* a pullback, however temporary.

Good luck.

* I also wanted to add that 775 has been my MAJOR WAVE 3 target every since the 1040 rally. This is the 2002 lows and would be a great place for shorts to take some profits… it’s got a great chance of getting there one way or another.