Thursday, September 17, 2009

3 Minute Analysis; September 17

Today was an interesting day in the stock market because many indices and assets are at perfect "topping points", but my confidence in a top being established now was very low. This is mainly due to yesterday's strong rally in stocks on the heels of the strongest breadth in weeks. This usually suggests an undercurrent of bullishness for stocks that caries on for several weeks. This of course may still happen, but there was absolutely no follow through today, despite all the good economic news that came down the wire today.

It's possible to label the declines in the major indices today as a 5 wave drop followed by a 3 wave a-b-c rally(see bottom chart of Russell 2000 above). The NYSE did the same and closed substantially weaker than the Dow which closed almost unchanged. Now the Dow, S&P and Nasdaqs all made a new high late in the day (see S&P chart on top right) however this new high was not confirmed by the NYSE and Russell 2000 indices (see above charts with blue line depicting the divergence). Now these are 3 minute charts so this analysis does not instill much confidence in a top being in place at all. But with the lack of follow through on yesterday's rally, the selling on good news that happened late this morning, the negative breadth that transpired today, the arguable 5 wave decline in most indices, and the minor divergence left late in the day, do in fact lay the ground work for a possible top and reversal to be at hand. The EUR/USD and gold and silver also reversed today and closed much weaker, and the GBP/USD continues to be much weaker than the EUR/USD. What's easy is that it won't take much to prove this analysis wrong. A simple rise in the Russell 2000 to above 616.79 and the NYSE above 7023 would negate all this and open the door for another strong rally to new highs.

Tomorrow is option expiration day and so a lot of volatility in the morning and at the close is likely. If the market wants to charge higher, most likely it break those key levels I mentioned in the Russell 2000 NYSE Composite within the first 30 minutes of trade. If not, prehaps something bigger is at hand.


Gustavo said...

My confidence in an actual top is not very high because C seems to me making a continuation flag.
If this paper goes under 4.11, my confidence in the top will growth.
What I see in the free week of EWI is the possibility what the European markets still can go a little up.

Todd S said...

Yes, my confidence is low in a top at this point as well. Can you further explain what you mean when you said, "If this paper goes under 4.11"?

Gustavo. said...

Off course:
Citigroup now is making a flag of continuation, if this break up is another signal to me what the market is not in the top; but the minimum point in the flag is 4.11, and if the stock goes under this point, may be we are topped in the broad market.
I cannot post one chart here what explain better than 1000 words, how my main language is not English.
I sugest to everybody interested in what I am saying look at the chart, is all there.

Todd S said...

Will do, thanks!