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.


Triple B said...

Hey Todd, Found your blog a couple of weeks ago, I really enjoy it, I check it every day now. I appreciate the time and effort you put into it. I've also gone back to many of your previous post, I'm impressed with how your post are honest, and for the most part pretty darn acurate. I like your S&P "Crash" chart and thanks for updating it. I'm with you as to the future direction of the markets based on EWP. However I wish you and EWP were wrong, Yes we will make money in the upcomming down turn, but I dont wish it on the country or other less informed. A lot of unsuspecting people stand to lose good money, not something to be happy about.
Anyway keep up the great work, and you have a new fan!


Todd said...

Wow Bob, thanks for the comments. Its folks like you that motivate me to work hard on this blog.

I too wish I were wrong on the crash scenario and I can't wait to become a big bull again. Unfortunately, our country has resorted to borrowing huge amounts of money to obtain the American dream, and paying it off later, instead of working hard now and buying it with cash. That type of behavior needs to be corrected before we can move forward in a healthy manner in my view. People will be hurt, but in the long run we'll be better off.

Thanks again for the comments!

git said...

I can't agree more with TripleB.

I like him check your opinion every day (just in case :-) since I lost my sleep last few days

Todd said...

Thanks for the note git. I'm doing my best to identify and trade the opportunity of a lifetime. It's close.