Wednesday, October 28, 2009

Internals Extremely Weak on Selloff This Morning

The NYSE/Dow sell signal I mentioned yesterday held true today. Like I said before, the last time this signal was very reliable was back during the last wave 1 or A down from the 2007 highs to the March 2009 lows was underway. The fact that it held true again today, at least so far, suggests that we are in another large declining phase.

Looking at the internals of the decline today we see a very weak picture (see pic above). NYSE has a whopping 5.1 stocks trading down for every 1 stock trading up, which results in 2017 stocks more trading to the downside. NYSE down volume represents 87% of total volume. Also notice the S&P where only 53 stocks are trading up today. The Dow is weighted in an odd way and I don't even really look at it much as a reliable indicator of the overall market because of that. The Dow is stronger today, again, than the other indices, but the S&P and Nasdaqs tell a better picture along with the internals I just illustrated.

It appears that in combination with the NYSE/Dow sell signal yesterday, the Russell 2000 continues to lead the way and tell us ahead of time what's in store for the overall market as yesterday it made new lows while the other indices did not. Today the Dow and S&P followed the Russell and made those new lows. So I will be watching the Russell 2000 closely until it proves to me that it's not a good indicator of future action. But right now, it's doing a good job forecasting what's coming.

The larger trend is down and a major wave 2 or B in the stock market has most likely ended. The momentum and pressure to the downside is so extreme that I'm not going to try and play this day-to-day. I am short for the long haul. 1101 in the S&P cash should hold for a long long time. As wave structure unfolds I'll be able to lower key levels for stops for those interested.

With all that said, the S&P has broken through that ascending trendline I've mentioned on the daily charts which today is at about 1056 in the cash market (S&P is currently below that trendline at 1051). That trendline is significant, and the market knows it. It wouldn't surprise me if the bulls try desperately to rally the market above the trendline by the end of the day, so I'm cautious of a rebound today, although a rebound is not required at all. But if it does happen, the trendline will soon be reversed and retested. Every time it's tested it erodes the bullish protection to where eventually it will crush through the trendline. Whether it happens today or later on, a strong close beneath that trendline and holding it will confirm that wave 3 or C is unfolding which will take the S&P into the 400s AT LEAST.

More later...

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