Wednesday, July 30, 2008

July 30, 2008; No Top Yet, Obviously

Yes, as Diver mentioned in his comment today, a top was not in yet and they're very difficult to call. The market did selloff right after my post earlier today, but the decline was bought up ferociously at today's close, negating my call. The top of wave 2 of (3) is near though, if not already in at 11,687 Dow, and the bottom line is that the indices are setting up for a major decline, at least 2,000 points will be erased from the Dow in just a couple/few weeks. According to EWP's rules, it's possible a top is in already (Dow 11,687). Once 11,687 is broken, it opens the door further rallying for days, or weeks. But the bottom line is that the market will roll over and undergo a huge decline that will be very profitable for the bears. The trend is down, and all my trades will be positioned short. If the top is in at 11,687 and wave 3 of (3) down is underway already, then the market better selloff first thing tomorrow morning because there is not much more room for any more rallying.

Although the strength, depth, and structure of the rally appears that there is still more rallying ahead of us, the momentum indicators point to a different picture. Breadth declined drastically today compared to yesterday, and the Nasdaq lagged horribly behind the blue chip S&P and Dow; both are signs of a waning bull trend, not the beginning of a new one. Also, look at the attached chart of the Dow emini futures which shows the bearish divergence occuring (see yellow lines), especially on the final rally wave at the end of the trading day. This also shows big weakness inserted in this rally. Can the indices continue rallying? Of course. But the rally is weak, and will soon roll over to a massive selloff; and it will be something we haven't seen in many years past.

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