Thursday, July 31, 2008
July 31, 2008; Head and Shoulders Pattern
Above is a 15 minute chart of the Dow cash index. You can see a head and shoulders pattern has formed. These patterns show a weakened trend that is now reversing. When you combine this pattern with the bearish divergence dragging on the index with the MACD, RSI, and stochastics, it's quite possible we've seen a top in the market, and wave 2 of (3) is over and wave 3 of (3) down is underway. This wave will absolutley destroy the market and panic Wall Street, the media, average folks, and our government. It's gonna be big.
Today I mentioned how there were a lot of buyers in the market because NYSE breadth was about even. It was like this all day until the final half hour when the market sold off sharply. Breadth weakened substantially as there were virtually no buyers and only sellers in the market at that time. This is encouraging in confirming the wave 3 of (3) down case already being underway. In wave 3 of (3) down, almost no one should be buying stock with 90% or more of NYSE volume being to the downside. If weak breadth continues into tomorrow's trading, then we should see this market fall off a cliff. There's a big jobs number coming out tomorrow in the Non-Farm Payroll report and that will swing the market one way or the other in a big way. The expectation is that the economy lost 75k jobs and the consensue from the "experts" on CNBC is that if we get anything close to that 75k number, then stocks will rally big. I actually see a better number than 75k coming out, but the charts and technicals of the market are setting up for a major fall. So it's possible the number will come out bad. If the number is over 95k, then expect this decline to accelerate.
Right now we have a great risk:reward opportunity to short the market now, or after the NFP report tomorrow morning, with a stop loss just above today's high, with stronger resistance at last week's high at 11,697 in the Dow.