Thursday, October 1, 2009
Market Falling as Planned, Internals Support Wave 3 Possibility; October 1, 2009
The market closed on its lows and sold off sharply in the last 15 minutes capping an extremely bearish day. The evidence is piling up that a top is in and a new trend has formed; a downtrend. Let's review what happened today that made it so bearish:
1) (most obvious) The market sold off sharply with the Nasdaqs and Russell 2000 getting hit the hardest at over 3%. These are high risk indices and it illustrates the fear out there to dump the high risk assets here.
2) The financials have led the market lower and higher so it's key to watch them for direction. Today the XLF sold off almost 4.5%, and it did so impulsively.
3) The S&P, Nasdaqs, Russell 2000, DJ Wilshire 5000, and others all confirmed the Dow's new low yesterday, eliminating the bullish non-confirmation I spoke about yesterday.
4) The internals of this selloff were extremely weak. As you can see from the above snapshot from Scottrade (click on pic to enlarge), almost 95% of all volume on the NYSE was to the downside, there were 5 stocks down for every 1 stock up, and the S&P had only 22 stocks trading to the upside. This is extremely bearish and fits the internal characteristics we'd expect from a wave 3.
5) Today was a broad based selloff with everything declining essentially but the US dollar.
The possiblity that a major top to wave 2 or B is in has increased signficantly after today's action. With the market tanking into the close, it's quite possible we'll see some follow through early tomorrow morning. If wave 3 or C has started, rallies may not be big and/or long, so playing for a bounce is not wise.
I'm working on key levels that will confirm wave 3 down and will post them as soon as I can. Nothing has changed as of yet as far as risk levels at this point, 1078 should not be broken any time soon, let alone 1070.
Be back shortly....