To answer that question, we first step back and up to a higher level. Let's look at a weekly chart and see if there is anything interesting/telling:
The important features on this chart are the 200,50, and 20 period MAs as well as two fib grids that I placed from the last two peaks on the left side of the March 6th low. At the highest level, we remain below the 200 period MA which indicates that over this time period, we are still in bear market territory. (Please don't argue with me on this, the rule is what it is!).
Next, though we recently crossed the 50 period MA, we started to get away too quickly it seems. The MA is headed south-east, price action is heading north-east (almost perpendicular), bouncing along the 20 period MA to boot. It is reasonable to expect direction of the price action to align more with the direction of the 50 period MA at some point. Of course, that will happen if we continue with this rally - but that would take quite some time (price action changes direction more easily than MAs), and it would probably require the price action to reach to the 200 period MA in the process. That looks pretty close to a 100% retracement of the Aug-08 high of 1318. Possible, but probably not in the coming weeks. A more likely near term scenario is that price action will turn and align with the direction of the 50 period MA. This will likely involve contact with the 20 period MA.
Now that is the key event in my mind. What will happen at the intersection of the price action and the 20 period MA. If we come in too steep, we'll pierce sharply and we could be in for a nasty decline. If we glide in more gradually (soft correction advocates will push this scenario) we may get a nice bounce, as we saw when this happened in June-July. The June-July correction took place over a 4 week period. Perhaps we can expect the same action in September. If we extend this corrective/consolidation process for the next 4 weeks, it seems to me that we could expect convergence with the 20 period MA at around 960. Do you see that?
OK, let's get out of the weekly view and open the daily for the last 100 days.
First, check out the congestion free zones between the current price and the retracement level around 975-980. Next notice that there is little congestion between the 975 retracement level and the 960 level. Seems to jive with the weekly scenario, and considering that 960 is the top of the previous trading range, I think it is a reasonable target.
Having said all of that, I would not be surprised if we see volatile price movement up and down through out this correction. The volatility first ensures that the big boys create as much carnage and suck up as much money as possible. There are a lot of day trading heroes out there ready to slaughter. Beyond that, price movement through this upper range is the only way to ensure a strong support base for any further rally.
Finally, my 60 minute chart shows the breakdown below the gap from 1018 to 1016 - followed by confirmation after breaking the down trend line of the failed flag.
The chart also indicates soft support below 998. This is my main short trigger level and I will carefully monitor other shorting opportunities on all pullbacks. The first goal is profit on the swing to 978 - if it comes!
PS-> Notice how well the hourly chart predicted the price capture at the 1004-998 level. That is what I call a "price gravity band". Also, I spoke yesterday about how important the top and bottom trend lines of the flag were. You can see today that both played and if you decided to short off the rejection from the top trend line - you did very well!
Good luck out there!
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