Friday, October 23, 2009

Short Term Stock Market Outlook

Well I said yesterday that in order for "The Crash" to possibly be underway, we needed the stock market to head lower immediately Friday morning, and it appears we got that. We also got the dollar to fill minimum requirements for a bottom with a completed wave count. Although none of these events are perfect, i.e. the S&P's decline from Wednesday's high looks a lot like a 3 wave drop which is a correction, and only the british pound against the dollar showed reversal-type action; it's still possible for a dollar bottom and stock market top to be in place right now. If not, the next ceiling for the S&P will be the 1120 level.

I may be trying too hard to shove a square peg into a round hole, but above is the S&P futures chart that shows a better 5 wave decline than the S&P cash does. However, this S&P futures chart has the 5 wave decline starting from a lower low than on Tuesday, so keep in mind the square peg analogy. But regardless, the S&P futures counts best on the chart above. On top of this, NYSE breadth is weak right now suggesting that the bears again have control today and are not happy with yesterday's rally and are intent on reversing it. Decliners are outpacing advancers 2.76 to 1, and down volume is 78% of all volume.

On the flipside, there are many holes in this analysis right now. The market is obviously not declining in clear 5 waves, yet, although it is possible to count the declines as 5's. The US dollar has yet to confirm a bottom, although its action against the british pound was impressive, no other majors exhibited this same action. The XLF is another kink in the armor. The financial ETF has made a new high making the decline a 3 wave affair. This is very problematic because it appears to have been leading the market down. But markets don't unfold perfectly, so we'll wait to let the market play out and confirm where it's at.

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