Tuesday’s Rally, Was That The Botttom? – 06/21/11 © ™

If history is a guide, any time the SP 500 fell  6 straight weeks it experienced decent gains over the following 6 weeks.  The ensuing rally never surpassed the prior high on any of those rallies.

The following chart shows that the market responded on cue as it hit the lower trend line and recoiled as expected.

06-21-11, NYSE COMPOSITE, DAILY BARS, SINCE OCT 2008, TREND LINE

What’s the Count???  Was that the bottom on Monday????  I’m not positive but I think we have one more step to go in the bottoming process.  The following chart (NYSE Composite) shows my wave count.  It appears that we have finished 4 out of 5 steps down.

06-21-11, NYSE COMPOSITE, 20 MIN BARS, SINCE MAY 2, TREND LINES

Here is another chart that shows a wave count of 4 steps completed.

06-21-11, DJ INDUSTRIALS, DAILY BARS, SINCE MAY 2, WAVE COUNT

If the market experiences another step down, the expectation is that it will be part of the bottoming process since June 15.  If the market were to accelerate to the downside and break the trend lines shown here, it “could” be painful.  Normally the market doesn’t wait until the last step to begin a waterfall.  But I have learned to never say never.

Breaking the downtrend channel will be the deciding factor on whether the decline is finished.  This means the market will have a  significant penetration of the upper trend line when the correction is over.

06-21-11, NASDAQ COMPOSITE, 20 MIN BARS, SINCE MAY 2, TREND LINES

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