Two weeks ago I published the chart above and noted that the obvious target for this pullback was the 1261 pivot, and that’s where we ended the week, with a successful test of that pivot area see: http://alphahorn.com/2011/06/04/public-weekend-musings-and-ew-counts/. As you can see from the SPX chart above and the DOW chart below, both indexes have reached the 2/4 trend line off the March 2009 low. Whether this is the completion of intermediate wave (2) of P or alternate count – intermediate wave (4), this trend line marks the ideal location for the correction to end.
In addition to the obvious support, there are other reasons to feel bullish going into next week. For one, the VIX triggered a buy signal on Friday closing back inside its bollinger bands having closed outside of them for several days. The chart below shows how the markets have reacted in the past, particularly when the ADX has reached extreme levels.
However, the cycle low is not due until the first week of July. If the cycles are correct, then perhaps we’ll see another bounce lasting a couple of days before the markets make their last move down to put in double bottoms. Best to your trading.