Thursday, November 12, 2009
Market Remains Fractured, Laboring Greatly
The market sold off today, which is what it "should" have done yesterday after that Dow/NYSE signal executed on Tuesday. But hey, the market does what it wants when it wants. Internals were weak today with the NYSE having over 83% of volume to the downside and having 3.8 declining stocks for every one trading up. The S&P 500 had only 58 stocks close higher today. So the internals were very weak, and lack of buying conviction is becomeing quite evident. However volume was weak today though, about the same as it has been the past couple days.
It's too early to try and call "the top" in place in the market, although there are some encouraging signs that it's possible. The S&P made a double top just above the 1100 area, showing that traders aren't convinced of follow through above that level and are taking profits there. That appears to be a key level. Also, several indices and securities made nice bearish reversal candlestick formations as you can see from my attached charts. In addition, the EUR/USD (which seems to be leading the stock market) formed a nice head and shoulders pattern on the 1 hour chart and is charging towards key support at 1.4800. A break of that level will be a signal that the pair might have topped (and the US dollar has bottomed), and a break of 1.4620 will confirm that a EUR/USD top is in place, and open the door greatly to the fact that the stock market may have topped at that time as well. One more thing, notice the daily VIX chart attached where you see a bullish candlestick formation with a "hammer" followed by a strong rally candle. A VIX rally would most likely mean a stock market decline, and the VIX looks like it's formed some degree of bottom and rally reversal at this time.
As of right now, in order for me to call "the top" to wave 2 or B, I'd like to see the current market leaders like the Russell 2000 and the XLF break their November 2nd lows. The Russell 2000 has especially been a good predictor of the overall market's future movement, so a break of 553.31 would be a big glaring sign that wave 3 or C is underway and the overall market has formed "the top".
So that's essentially where I feel we're at. The market is extremely fractured, i.e. gold and silver are diverging greatly, a few indices made new daily highs while others have not, only a handful of stocks are leading this market higher, internals of the market show a lack of buying conviction, and the past two sell off and rally phases were met with high volume on selling and low volume on buying. So it appears buyers are fleeing, and starting to dissipate. So the topping formation continues, and I'm waiting for some king of confirmation of "the top", which might occur when the EUR/USD breaks 1.4620 AND the Russell 2000 and XLF break their November 2nd lows.