Wednesday, November 4, 2009

Bearish Reversal Day Today; Signals Next Round of Selling Underway

I'm impressed at how well the Russell 2000 has been such a good market forecaster in this declining phase we're in currently. My post this morning illustrated the Russells' 5 wave decline right before the Fed announcement. The Russell never came close again to its highs, and the XLF, DJ Transports, Nasdaqs, S&P and eventually the Dow all followed lower into the close. Needless to say, I'll be watching the Russell closely until it proves it's no longer a good indicator of future market movement.

Today the market rallied as I said was possible yesterday, after those bullish signals were registered. However the market did not rally as long or high as I thought, so we still have to keep that in mind and prepare for more upside until this week's lows are broken at 1029 in the S&P. However, the big reversal after the Fed announcement was quite impressive at the end of the day, and it flipped the pretty positive internals on the NYSE from very positive to basically flat, and over 400 stocks in the S&P were trading up before the announcement which ended up also closing almost even for decliners and advancers.

As you can see from the above short term and daily S&P cash charts, it's possible to count the rally today complete for wave (2). But it's just so shallow and short on time that I'm still skeptical that it's over. So I'm on psychological guard right now. However, if we are in a big wave 3 or C crash right now, this short and small rallying should be the norm in most of the decline as these waves are very very powerful. A break of 1029 will eliminate any doubt that wave (2) is complete and signal that a small wave (3) down was underway which should quickly get the S&P to at least the mid-900s in a hurry.

Until wave (2) is solidly confirmed, my breaking point for the immediate bearish crash case is the 1101 level in the S&P cash.

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