So far at mid day in the market we have close to 200 million shares trading on the SPY SPDR S&P 500 ETF. So if that is extrapolated out to 4pm close today we could get somewhere near 400 million shares for the day.
If we do get closing volume near that level and we also get a closing price today that is near the bottom of the range of today’s trading then it does indeed setup some cascading follow through selling into this coming Monday. There is also a key astro date this Sunday which could add to the volatility and emotion going into next week.
This sell off is getting added fuel from the currency instability and what I am seeing in both the Euro and US dollar index are spike potential blow out type moves that could terminate sometime next week.
So for the SP500 I think we do once again go down hard early next week and I think we have a decent chance of tagging the May 6, 2010 price low.
Assuming that happens, the issue from then on is do we hold near that 1043 to 1066 support area ? I think we do hold that support area, but the key will be in the interpretation of the Relative Strength Index versus price.
Markets have been known to do very large moves on an intra day basis, but where they actually close on the day in the final analysis is all that matters. For example we could see a 2000 point swing in the Dow Industrials this Monday, but only on an intraday basis. Then it could maybe only end up closing down 300 points for that day and still set up a bullish divergence between the indicators and price.
The key for Monday is to forecast what the potential RSI (Relative Strength Index) values will be depending on various ranges of price and then also closing price. By doing this we can get a good idea of what prices would signal a bullish divergence. It also can give us an idea of what potential range in price is possible on an intra day basis.
I am going to calculate some values this weekend and then post them here to see if I can come up with a road map for next week.
Still, I think it is unlikely for us to see price simply cascade below the May 6, 2010 1065.79 value and then just keep falling down below that right away in crash fashion.
That swing low was on extremely heavy volume and it is likely to see another bounce higher from that level, or an extended rally and consolidation of maybe a month or more in duration.
The market ‘stopping’ somewhere near the 1065 range also makes sense from the shorter term Elliott Wave count. I am not Elliott Wave expert, but it would appear that a retest (or slight swing under) the May 6, 2010 low would complete a full 5 waves down and then set up a more extended bounce into June.