I'm still reluctant to say that a big wave 3 is back on the table, I think its more likely that we are just in the last phase of the B move of this ABC correction for wave 2 up. But it's no longer impossible. If this is a big wave 3, we will continue to tank and take out 1121 pretty quickly.
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Key Levels
Upside -- 1234, 1255, 1272-1280
Downside -- 1229, 1199, 1121
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SPX Daily;
You can see we closed on a critical point yet again. We are on a small trendline for a potential flag as part of the potential B wave and we are sitting on the 100dma. If we close more than 10 points lower tomorrow, then I think we move back to 50/50 probability on whether this is a B wave or really is the big Wave 3 down.
IF its the big wave 3 down. Then this is wave 3 down of 1 down of 3 down. It should be powerful and would take out 1121 pretty fast. Less than 10 trading days.
If this is a B wave, then we'll likely see some bounce tomorrow and we will likely remain inside that Red flag I have drawn. A B wave could retreat as low as 1150, but not lower than 1121 on a close.
Point being, we are left without a concrete idea of where we are at. Which is usually the case, if it was easy the rich people would be the 99%.
What we can do is watch how this trades. As i've mentioned, a 3 of 1 of 3 will be powerful, it will string several very large down days in a row and it will be relentless powerful and broad selling. A simple B wave will just not have that kind of impulse and power. Todays impulse and power is indicitive of a 3 of 1 of 3, but we need to see more strung together.. 1 is not enough.
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A little of my own thoughts on Italy;
Italy is a preview of what is going to happen to the US at some point in the future. With Greece basically toast, the contagion has spread to the next weakest link. The question is whether Italy can survive an assault on its ability to remain solvent. The answer to that is no.. nor would the US. Nor would Spain... nor would the UK... nor would Portugal.
It's like a financial war. If you can be attacked and they know you'll die.. you'll be attacked .. and you will die.
It's all a big chain reaction. Greece goes down.. MF Global goes down.. Jefferies is reeling and cuts its exposure in half.. Blackrock is exposed.. tons of firms are exposed.. they cut holdings.. what does cutting holdings do?? It means they must sell some of their holdings.. which does what? sends yields higher in those countries.. which weakens them more and puts other firms that werent as exposed in pain as the bond prices continue to fall.. more firms must reduce exposure..
That is the downward spiral of a government who has promised too much.
Where things really get ugly is when a few big firms go down because they do not have enough time to reduce exposure. Events like last night can cause that. Italian bonds literally exploding in yield overnight. Margin requirements are sure to be raised, causing you to have no choice but to dump positions or post more cash. It leaves very little time to attempt to reduce exposure. This kind of action is what causes a Bear Sterns or Lehman.
And if another one of those happens again.. ANYWHERE.. not just the US.. if Credit Suisse or Societe General or any of those go boom overnight. It will set off a much more dangerous chain reaction just like the Bear Sterns and Lehman disaster. That of the CDS firecracker chain reaction, that will ripple around the world.
.. be warned though... whats happening in Italy WILL happen to us unless we drastically change our ways in the very near future.
GL
CJ
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