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Fun(ner) With Numbers

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Just wanted to update readers on the evolving path of prices in light of my original Fun with Numbers piece and the subsequent follow-up. Last Thursday, I suggested that how the market approached the 1050 to 1055 SPX area would be telling as to whether we would get slight new highs. Well, those resistance zones were breached and the SPX went to new highs on Friday of 1063.65 and immediately retraced all of those gains, coming below some important Fibonacci AND trendline support levels today. So what does this suggest from here?

You'll recall that our original "perfect setup" target for the SPX was 1068 on Friday 11/7/03, representing the 0.382 retracement level of the entire decline from the 3/24/00 SPX high. 4.35 SPX points and 7 days on last Friday's intraday high to our 1068 target: close enough? For these studies, the answer is yes (recall I suggested that a few days and a few points on either side of the perfect setup would suffice).

In terms of the Fibonacci, Elliott, and Demark studies I have referenced, the impulsiveness and form of the decline from Friday's high has all the earmarks of an important trend change (and I would add that Europe's and Japan's pullbacks add an additional supportive element).

So what to do now? According to this work, if the top is in (and understand that the confidence that it is has gone up considerably in the last 2 trading days) we should get a rebound over the next one to three days that gets to the 1045 to 1050 area on the SPX and then falls even harder than the price action of the last two trading days. Using projections based on this work, should such a failure at 1045-1050 take place, a target of 960 or so for the SPX before the year is out would be "logical". [Please re-read Fun With Numbers to get a sense of how important that 1063.65 level could turn out to be in the long term picture.] The alternative, which at this stage is a low probability (but decidedly not a "zero" probability) event, is that prices move through the 1050 area easily; that would increase the probability of, again, slight new highs.

So there is our price roadmap for the next several days. Stay sharp. You might just have the fattest pitch of the year coming down the plate soon. (As always, these observations are for educational purposes only).

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