Well I got the knee-jerk reaction I was looking for and the retest of the breakout at 1200 to 1215 zone basis cash…BUT the prices that launched the bounce were at price and time levels. This raises the probability of a short-term bottom from 30% to 45%.

Note that for the charts below all figures are basis cash.

Figure 1 shows the target levels reached by the price action last night.

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FIGURE 1 S&P Levels

In Figure 2, the black lines represent the quarterly trend. If there is a quarterly line turn, the minimum price will be the line turn price, currently at, 1326.23. Figure 2 shows that there are 2 high probability targets for the bounce:

  1. 1326 to 1335. This has a time target for Oct 30 2008. And
  2. 1371 t0 1384

If a rally gets underway, I’ll be able to estimate which of the two is more likely to occur.

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Figure 2 S&P Retracement 60-day swing

Figure 3 shows  the three benchmarks for the rally: we need to see acceptance above 1215, 1251 and 1268. Another way of saying this is these are the levels where the downtrend may resume. Of course acceptance below 1168 will signal confirmation of the resumption of the downtrend.

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FIGURE 3 S&P Rally Benchmarks

Interesting times. For me, I settle back and let the market play out any rally; the quality of the rally will dictate where I will next take a position.

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