Market Update - 7/1/2010

My secondary count from yesterday is most likely now in play. With the sell off this morning, then the bounce back, it is a good chance that wave (iii) is over, and wave (iv) has started.

The target I had yesterday on my alternate count was 1014 on the SPX. We made it to 1010. Close enough.

The 38.2% retracement of wave (iii) would be somewhere around 1044, and as we know, this pivot is very very important. But me may not make it that high, we also have some key resistance around 1029.

Ovbiously, if we break down below 1010, we could easily get to 993.

Head and shoulders. When was the last time it worked? But we do have a very scary head and shoulders pattern completely formed on the SPX daily charts now. The neckline has also been broken.

The target is back to the July '09 lows around 870. That may seem crazy right now, but if 2 months ago someone said that the SPX would be 200 points lower than it is now, would you believe it? So why can't we drop another 200 from where we are today?

Either way, the reason this may fail is because everyone is talking about this pattern. If everyone knew this H&S was going to work, everyone would make money. The market never lets that happen.

The one other concerning thing is that the VIX has some heavy negative divergence. The market has broken the 1044 pivot by nearly 44 points, yet the VIX has not even approached the 48 level, the same level it hit when we first approached 1044 in mid May.

There is less fear in the market @ 1010 than there was @ 1044. Is it bullish divergence? Or is it too much complacency?