Tuesday, November 17, 2009
Market Looking Toppish - Wednesday Should be Interesting
There are a few things to go over today, and most of them have me conclude that the market is topping, or may have topped today. At what degree that top is will be determined by the ensuing decline. Let's run down the supporting evidence:
1) the NYSE/Dow signal executed today with the Dow closing up while the NYSE closed modestly down. Last time this occured it was on a week of very low volume, the following day was a holiday (Veteran's Day), and as the market was rallying to new highs, so it didn't work until the day after the holiday where we had a selloff. Normally this signal works when the market is in a downtrend, or at the forefront of one. So we'll see if tomorrow proves this signal reliable again with some heavy selling.
2) Monday I illustrated the unusual activity in the US dollar through the USD/CHF (see chart here). This smells of distribution where institution(s) cover their short dollar positions, repatriate their dollars to the US, or simply establish a long dollar position. This was big movement in the currency and it should be noticed that following it we had a stronger rally making a new high today. Look at my attached Euro/US Dollar chart at the 2 hour timeframe. This pair moves opposite the US dollar essentially so this pair basically should move in line with the stock market. The key to the US stock market holding up is the US dollar. So watching for a EUR/USD breakdown can give us a good idea of when the stock market is going to break down. Well observe on the EUR/USD chart that the recent rally did not make a new high, and today's selloff made a new low. So we now have 2 failed attempts at new highs on the daily chart and now we have a new low. This is how downtrends start. If the EUR/USD is breaking down, then the stock market should soon follow. This in and of itself may not be that big of deal, but when combined with all the other "toppish" indicators occuring right now in the stock market, it's something to watch closely.
3) The Dow made a new intraday high today, and closed at that new high while the S&P did neither as you can see from my two charts attached. Yesterday's post had a wave count that required one more new high before completing 5 waves up, and some sort of top forming in the S&P (see post here). Well today's Dow high may have satsified that requirement, or may do so with the S&P popping to a new high quickly tomorrow morning. Either way, today's non-confirmation between the Dow and S&P is bearish when combined with all the other evidence at hand, and will remain so until the S&P confirms a new high with the Dow.
The only kink in the armor in the very short term is the fact that the structure of the decline from late Monday does not look impuslive in the S&P and other indices which suggests it's just a correction and new highs are coming. However these highs should be 5th waves and reversed quite quickly. So my position now is that a top is forming at some degree, but I can't call a top and reversal until I get confirmation which I don't have yet. So I remain short term neutral at this time.
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.