Friday, October 23, 2009

Lots of Bearish Implications Occurred Today

Aside from the triangle scenario I listed in the previous post, we have a lot of action today to cover that was very bearish, and puts this immediate bearish count I have above on a slightly higher priority than the triangle scenario.

First, the bears had control all day and NYSE internals proved that by having 3.1 stocks trading down for every 1 trading up; also, down volume was 84% of total volume. In addition, only 45 stocks in the S&P 500 traded to the upside. This was very bearish, especially after having that big reversal rally yesterday. It shows no follow-through or conviction by the bulls and could signal their last effort to inflate this market higher. This up/down churning of the market often occurs at tops because bulls and bears literally battle it out for control of the market. Starting Wednesday, it's bears 2, bulls 1. The bears take control going into next week.

Second, the US dollar, as shown in a previous post today through the USD/CHF chart, may have formed a major bottom and will rally the next several months/years. The short term wave count can be viewed as complete with last nights slight new low. The British pound was destroyed last night by the US dollar which is the type of behavior I'd expect to see when the dollar bottoms and rallies against other currencies, but unfortunately this didn't really happen with others, just the pound. But it's quite possible the pound is just ahead of the game and is going to lead the other major currencies down against the dollar. We should know early next week. The dollar story is truly the key for a stock market top. When the dollar finds a bottom, it will result in a stock market top and lead to the crash I've mentioned (and shown in my long term chart at the right of the blog).

Third, the Dow Jones Transports (DJT) was destroyed today down 3.5%, and down 5.41% for the week while the major indices were only down modestly, less than 1%. Many know that the Transports index can often lead the market up or down, so the Dow Transports severe weakness this week can have very bearish implications for the overall market.

Fourth, observe my 15min S&P futures chart. You can see that the market can be declining impulsively, which suggests the trend is now down. I would have like the futures to break beneath 1070.25 to eliminate the triangle scenario, but it can do that next week if it wants to. Notice that the previous two selloffs from Wed and today are almost straight line down affairs. Prior to both of them, they are not as straight line up affairs, and the market has really been struggling the past couple weeks to make any net gains at all. In fact, the market is at about the same levels it was trading at October 9th, two weeks ago, and those two weeks of gains were wiped out in 1 1/2 hours essentially on Wednesday, and taken away again today. These are elementary signs of trend identification which suggest the trend has changed to the downside, in line with the EWP wave count. But I would like a break beneath 1070.25 to occur so I can eliminate the triangle scenario and put this bear count on firm footing.

So the bullish triangle scenario remains in play until the S&P 1070.25 futures and 1077 cash is broken, which would put the immediate bearish count (shown in chart above) at the very top of my list of probabilities, which we'd then have to look at the ascending trendline holding the market up since March of 2009 to be broken and closed beneath to confirm the crash is underway.


Anonymous said...

Hey Todd,

There is another alternate. If the S&P comes under 1070 and then reverses higher. It all could just be an ABC correction. Drawing a trend line and not allowing it to break is probably the way to combat this alternate.

Good luck!

Todd S said...

This is true, and good call. But the reason that's not at the top of my alternate counts is because you can see that the decline Friday was a 5 wave affair, and it's almost equal in size already to the proposed wave A on Wednesday. So that would mean we'd still need a 3 and 5 waves down from Friday's low which would make wave C very large compared to wave A. It's possible, but not as likely as the other scenarios I put forth, in my opinion. As the market falls, I'll give more attention to this count to raise awareness.

Thanks for the input!