Friday, October 16, 2009

Stock Weakness Today as Illustrated Yesterday

The stock market tumbled this morning which we had a pretty good signal would happen as shown from my previous posts; momentum was severely waning. Today is options expiration day so I don't want to read too much into the decline, so far. Internals are weak on the NYSE but it's still early. Plus, the euro and gold and silver are fairly steady in the face of the selloff so there's no real "deflation" or unwinding of high risk assets right now which might signal the start of something bigger occurring right now. It just looks like options expiration and profit taking occurring at the moment. But we'll see.

There are some things of interest though. Check out the daily S&P futures chart I posted above. If today's selloff holds, it will create a double bearish divergence on the RSI, as well as several other momentum indicators, in the recent rally. One RSI divergence on the daily chart is bearish enough, but to get two in a row is very problematic for the market and the bulls, especially after reaching and reversing at the "so important" Dow 10,000 level. We'll see if the divergence holds. The Russell 2000 and the Nasdaqs are somewhat weaker than the blue chip S&P and Dow so that shows a little bit of risk aversion on the table, plus the VIX is up 3% today after gettting to a yearly low yesterday, but option expiration definitely is effecting that. So an interesting day for a Friday which is typically uneventful.

As a bear, I'd like to see the market stay solidly negative and confirm the RSI divergence I just mentioned. So many bulls are waiting for a weekly close above 10,000 but I think if it occurs it will be a "bull trap". It will suck in all the bulls which will be a capitulation rally that forms a top and reverses.

So let's let the day play on see what develops. More later.

No comments: