Thursday, November 19, 2009
Bullish Triangle Eliminated, Internals Extremely Weak; Some Degree of Top is in
Ah, finally some market movement that gives me something to write about finally. Yesterday I showed the consolidation of the market and labeled it as a possible bullish triangle. Triangles are great to trade because you know exactly where you're right and wrong. The break of 1103 negated the triangle and opened up immediately bearish potential.
As I've been stating for days the market appeared "toppish" due to several indicators supporting a severe weakening in the uptrend, especially the light volume accompanying it. Today we have a sharp selloff with extremely weak internals, see the data posted above: NYSE is trading an amazing 7.64 stocks down for every 1 trading up, 94% of total volume is to the downside, and the S&P has 486 decliners to only 13 advancers. This appears to be some of the weakest and most broad based bearish internals I've seen in a long long time. It seems that with every selloff the intensity and internal weakness has been increasing. That's long term bearish and should give the long term "recovery" bulls some serious reconsideration of their positions.
You can also see on my 30min S&P cash chart that the market completed a 5 wave rally preceding this selloff. The 5th wave would have counted better with one more high, however the Dow actually did make that new high, which in effect created a bearish divergence between the Dow and S&P that was not resolved and the market sold off. Again here's another example of the fracturing that occurs at market tops. See my post here discussing the bigger long term fracturing occuring right now. On a much larger scale, we currently see this fracturing in the Dow and S&P versus the Russell 2000, XLF, DJ Transports, etc.
So the key question is whether or not this is "the top". Unfortunately I don't know yet. We need to see further break downs of key levels accompanied by high volume and weak internals. What I can say is that some degree of top is in now and that 1111 and 1114 should hold for at least a few days. The first test of this decline will be the previous 4th wave which according to EWP is oftentimes a support level for corrections. If the market just blasts right through this level at 1085, it will hint that this decline may be more than just a correction. The next bigger test will be a break and hold beneath the 1060 level. That will definitely get my attention and perhaps give confirmation that "the top" is in. Hopefully I'll be able to identify "the top" sooner than that though.
So I'm now short term bearish as long as the market stays below 1114 in the S&P cash index. And of course I remain long term bearish.
PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.