Friday, November 13, 2009

Friday Morning Update


So the stock market surged this morning.....or did it? Again, the Dow is the one on fire, yet the stragglers are becoming more pronounced here. Currently the Dow is up .80% at the time of writing, but the S&P is up .63%, the Nasdaq Composite only .56%, the Russell 2000 only .47% and the XLF is actually DOWN .14%. Again, the Dow seems to be "running the wrong" way, and only a small handful of stocks are dragging the rest of the market mildly higher. Yet these gains are becoming harder and harder to obtain. NYSE internals are nothing stellar for such a big Dow rally with 2.26 stock trading higher for every one stock trading down. This again supports the thesis that only a handful of stocks are dragging this market higher. This doesn't mean a top is in, not at all, the market can slug along for days/weeks. But this type of behavior is part of the topping process that will snap back hard to the downside once it's done.

Yesterday's post illustrated the structures in the Russell 2000 and the XLF (financials ETF) and showed a very bearish picture and possible reversal yesterday which may lead to their next leg down. Both of them have not come close to exceeding their daily highs like the Dow, S&P and Nasdaq 100 did. Yesterday the Russell 2000 was down about 2%, much greater than the other indices just mentioned, and today it's up only half of what the Dow is percentage wise. So the Russell is really dragging. It's too early to confirm this, but I'm starting to think that the XLF and Russell 2000 have already topped and reversed in their wave 3 or C back in September 23rd for the Russell and October 14th for the XLF. This is classic behavior for large topping action. Some indices charge higher and higher while other indices and sectors lag, and some start their bear markets earlier than the main indices. That's occuring right now and we need to pay close attention to it.

With that said though, looking at the very short term (15 minute chart) S&P cash pattern, it looks a lot like a 3 wave downward correction completed from yesterday, an ABC zig-zag which I labeled in the attached chart as my "Top Count". This suggests new highs for both the Dow and S&P in the near future. From there, I'll have to assess what happens. But with the XLF and Russell 2000 sporting those big reversal patterns yesterday and then dragging big time today, I'm not sure they will follow the Dow and S&P to new highs from this week, which means a new high in the Dow and S&P would probably be short lived. The other alternate count is that the decline from yesterday is a series of 1s and 2s to the downside (see attached chart). It's not wise to count a series of 1s and 2s without solid supporting evidence as your primary count so that's why this is my alternate right now. A break of 1085 in the S&P would make this count my "Top Count".

As I watch the erradic short term movements of this market I continue to focus on the "Long Term S&P Futures Chart" on the right side of my blog in order to keep perspective on the bigger picture. The short term may fool me many times, but the long term is clear.


Gustavo said...


I think is a good idea what if anybody make a click on the chart updated can get a picture with a bigger resolution.

Thank you.

Todd said...

Thanks for bringing that up Gustavo. The blog will only let me post a certain sized picture and I try to make them as big as possible so people can understand them without clicking on them to enlarge them, but sometimes that's not possible.

Clicking on the pic to enlarge it is always an options.