Rally Of Disbelief - Market Analysis for Dec 29th, 2015

“There is no volume to this rally.”   “The market really needs lower levels.”  “Wait until everyone comes back from vacation and sells the market.”  Yes, the wall of worry is alive and well, and so is this rally, for now.

Why do some of you presume that the people that come back from vacation will sell the market?  How do you know they will not look at it and say “let’s join the party?”

Personally, I don’t care what they say.  It makes no difference to me what any of them say when they return.  All that matters to me is support and resistance, and whether the pattern continues or breaks.  And, as long as the market continues to hold support, we are going higher, and if it breaks support, then we can look at the potential for the 1800’s.  This is not rocket science.  But, I am not going to short a long term bull market until a bullish pattern breaks.

For the last 4% rally, some have attempted shorting every 5 points up, and some have even been using leverage.  While they may turn out to be right in the end, if you turn out to be wrong and short a bull market before a bullish pattern is broken, you can find yourself underwater rather quickly if this 3rd wave continues to accelerate.  One of my old rules “never short a possible 3rd wave,” at least not until it proves that it is not a 3rd wave.  And, that is the perspective I am taking right now.

Right now, we are heading up into the resistance region we noted this past weekend.  If the market is only in a bearish counter-trend rally, then we should see a reaction in this region to the downside, which should break the 2055SPX level (.618 extension) from the 2090SPX level.  That would be a strong initial signal that the bull move is a fake, and the market may set up for the 1800’s into the first quarter of 2016. 

But, right now, the market is acting consistently with the heart of a 3rd wave – gap up, high level consolidation, and upside continuation.  And, if the market continues through 2090SPX, it can begin to accelerate up towards the 2117-2134SPX region in wave (iii) of 3 of iii in the bullish count. 

It’s time to really test this bull move, and see if it is for real. That is why this section of the rally is known as the “point of recognition.”   We are going to put it to the test.

And, the main reason I am putting out the market update early is because I want everyone to recognize where we are in the trend so they appropriately prepare.

Avi Gilburt is founder of ElliottWaveTrader.net.