Below is the daily SPY chart.
Notice I marked the Elliott’s 5 Wave patterns on the downtrend starting from the top at April 2nd, 2012 and ended on June 4th, 2012. From there on, I also marked the A-B-C correction to the upside. Friday down bar “potentially” creates a temporary “top” for wave C at $137.80. However, Wave B ($130.85) has to be taken out before we can validate Wave C is complete.
Looking at the weekly SPY chart below, wave B ($130.85) from the daily chart happened to be the low of big green bar 2 weeks ago. In a way, $130.85 is a price point to keep an eye on.
Meanwhile, notice that in 2011, the week ended July 8 showed a small range bar (see little down arrow pointing to the price bar inside the red box) right after the big green bad ass bar from the week before. Now, look at last week bar ended July 6th. It also showed a small range bar; but this time it is a little red weekly bar. If history is to repeat, we may have a down week coming up. Adding to the probability of downside bias, it doesn’t help that last week small range red bar closed below the 61.8% Fib retracement resistance at 136.45.
In summary, in my opinion, caution is warranted in the coming week.
Since I’m 85% cash currently, I believe I’m cautious enough.
Good Hunting!
ps. btw, the Elliott Wave patterns are my own personal interpretation only; therefore, feel free to disagree.
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