Wednesday, October 28, 2009

Extremely Weak Day in the Stock Market

Well the Dow/NYSE sell signal mentioned yesterday proved itself worthy again today with the Russell 2000 losing 3.51%, the Nasdaq Composite losing 2.67%, the S&P losing 1.95% and the Dow losing 1.21%. Internals continued to weaken into the close and so far are as follows:

- NYSE decliners outpaced advancers an amazing 8.63 to every 1 advancer
- NYSE had 2457 more decliners
- NYSE down volume was 90% of total volume
- S&P 500 had only 30 stocks close up today
- Volume was strong, and was its highest since Sept. 30th (another down day)

Also, the dollar continued to rally across the board and confirmed that it has in fact formed a major bottom and should rally for months, which will be a major headwind for the stock market.

Today's decline in the S&P broke and closed beneath the ascending trendline holding the market up since March of this year. And it broke through it convincingly. The S&P needs to hold below that trendline on a closing basis the rest of the week for it to confirm "the crash" in wave 3 or C is underway.

With such a sweeping across the board selloff with such weak internals that I described above, a snap back rally is possible, but not required. With the overriding trend down very strongly with wave 3 or C, rallies may be very small and short. One indicator I watch closely for bottoms and rallies in the VIX/Bollinger Band indicator. Notice on the chart posted that the last 3 times the VIX (red/green candle chart at the bottom) had a daily close above the top orange bollinger band and then later closed beneath that same top bollinger band, the S&P (blue line at top of chart) made a bottom and rallied. We did not get a VIX close above the bollinger band today, but I'll be watching it in the future to give us a sign that perhaps a big rally is coming.

That's all for now. Overall, the market is meeting expectations for wave 3 or C to be underway now, which will eventually lead to the S&P getting into the 400s and the dollar soaring significantly in the coming months.

1 comment:

GoodVibe said...

Todd, great observation about the VIX B Band. Very well used indicator. Thanks! I hope you pass us this as soon as you see it happen. :)