Thursday, August 27, 2009
Wave 2 Appears to be Struggling, Watch out for Wave 3 Soon; August 26, 2009
Wave 2 is really starting to struggle and according to the wave count is almost over. The advance/decline ratio on the NYSE has been weakening significantly the past couple months showing a higher demand to sell and less of demand to buy different stocks, up volume vs. down volume has been narrowing as well, volume overall has been fairly light late in the rally, the RSI and other momentum indicators are sporting a bearish divergence (see above chart), and most importantly optimism has reached extreme levels exceeding that of the 2007 top! The sideways action the past couple days looks like a small wave 4, perhaps a triangle, which means a shot higher to a new high should occur and then a reversal. I expect my 1067 S&P futures level to be tested as I've said it will for months now when this rally got started. Perhaps that may actually mark the top of wave 2.
The bottom line is that wave 2 appears to be in its final stages and with bullish demand waning and optimism at an extreme that's higher than at the 2007 top, the market is poised to undergo the monstrous wave 3 down to the 400s at any time. Time is very speculative in EWP, but my guess is that wave 3 will start before the end of September of this year.