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Is The Correction Over?

02/28/11 11:46:47 AM
by Koos van der Merwe

Global unrest was the cause of the expected correction in the market. With the DJIA going strongly positive on February 28, is this suggesting the correction is over?

Security:   SPX
Position:   Sell

As much as the investor would love to see the market go bull, and as much as I would love to see the list of stocks I am starting to bottom-pick move into positive territory, my charts are telling me, "No!" The market has still some ways down to go.

Graphic provided by: AdvancedGET.
Figure 1 is a chart of the Standard & Poor's 500 and shows the following:

a. Gann fans are suggesting the following dates as a possible turning point: March 16, April 11, and May 27. Do note the dates are highlighted as the fan crosses the horizontal line drawn from the low of the previous Gann fan.

b. Buy zone-sell zone Gann lines are suggesting buy and sell zones for the S&P 500. The S&P 500 is still in a sell zone.

c. The relative strength index (RSI) is below the 50 levels, suggesting that we could see a move up in the downward correction.

d. An Elliott wave count suggesting that wave I of wave III has to correct to the fourth wave of lesser degree, somewhere between 1176.13 and 1229.86.

As much as I would like to believe that the correction is over, my charts are suggesting that there is still a considerable amount of a downside. I would not be a buyer at present levels, but I would start looking once the index falls below the 1229.86 level. Should the price of the index rise above the 1346.78 level, then I would have to redo my Elliott wave count. At the moment, unfortunately, I must be bearish.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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