Today's action setup a short term bullish correction for the short term. I want to be clear that the larger trend is down and I strongly feel a large wave 3 or C is underway, which essentially is a large "crash" that will occur over several months with an ultimate target of at least the 500s for the S&P. For now, the 1101 S&P cash level should remain intact for a long long time. Today I'm merely presenting the facts as I see them which suggest a short term bullish move for the market for the coming days. Here are the bullish bullet points:
1) the VIX made a daily close beneath the upper bollinger band which concludes the buy signal (see chart attached). The last 3 times this occured, the market bottomed and rally to new daily highs. However I don't feel it will make it that far this time.
2) the Russell 2000 and Nasdaqs were stronger today and made new highs all day where the S&P and Dow struggled a bit to do so (the Dow was dragged down by Intel).
3) also, the daily Russell 2000 chart sports 5 waves down and then a bullish reversal candlestick formation (see attached chart). This suggests a corrective rally coming.
4) S&P and NYSE internals were pretty bearish this morning but flipped to be solidly bullish by the close. Nothing impressive, but it defintely showed the volume was coming in to the upside when the market rallied later in the day.
5) the dollar rallied nicely all last night into this morning but then reversed and is now forming a daily bearish reversal candlestick (see attached chart). The projection is that it's in a wave (iii) of 3 which is very bullish. So if the dollar doesn't accelerate its rally soon, something else is unfolding. The Fed announcement tomorrrow MAY do that. But right now, the dollar looks at least short term bearish which coincides with the bullish outlook for stocks in the short term.
6) tomorrow is the Fed announcement, and October's unemployment data comes out Friday. Both the Fed and unemployment announcements over the past several months have brought rallies to the stock market, no matter what the news was. This may not be the case anymore because the larger trend has changed to down, but until the market proves it's not true anymore we will assume that it is true.
7) lastly, many indices made inverse head and shoulders patterns (see S&P cash chart). As many of you know, an inverse head and shoulders pattern after a decline is a bottoming structure.
So lots of bullish action occured today which makes me conclude that the market has some bullish potential in the coming days. But I made no trades today and remain fully short, because I know that if the trend is down then surprises will be to the downside.
5 comments:
Hello Todd and readers:
It's an article I read today in www.bloggingstocks.com what catch my atention. If possible I share here:
"Wow! Why is gold trading at record levels?
Posted Nov 3rd 2009 6:00PM by Connie MadonConnie Madon
Here's a shocker! India's central bank just bought 200 tons of gold!
Do you know why India bought the gold? India's finance minister said the reason for the purchase was that the economies of Europe and the US had "collapsed."
India swapped $6.7 billion dollars for gold equivalent to 8% of world annual mine production. India's move was a clear signal that Asia is moving away from the the US dollar.
India's purchase pushed gold prices to $1,086.10 per ounce. December gold futures are trading at $1084.60 per ounce, up $30.60.
India's finance minister said: "We have money to buy gold. We have enough foreign exchange reserves."
New Delhi's purchase came a few months after China revealed that it had almost doubled its gold purchases. It is believed that China, Saudi Arabia and Middle Eastern sovereign wealth funds have enough money to buy the remainder of the IMF's gold reserves.
What does all of this mean? Simply put, Asia and the Middle East are getting out of dollars and putting their money in gold. They are rapidly losing faith in the economies of Europe and the US. How all of this plays out remains to be seen.
Would you buy gold now?"
End of article... I hope the answer is not!!!!!! But gold is moving higher. We'll see.
This is one commoditty what until now not give any signal of trade down.
Regards.
good points, seem to fit with a possible wave 2 up -
it's interesting how some wave 2, especially now that we are in a possible p3 wave, are violent and strong counter moves, yet others are squishy overlapping messes -
interesting fed watch day today....
Thanks again for your great posts. I have to say I am a little confused about the market this week. Honestly I was expecting »crash« to happen sometime in the next two weeks but now I am not so sure. Is it possible we'll have this sideways movement till the end of the year... hopefully not but it's something to think about. My theory was that the market will go to 850-900 level, bounce back before new year and then crash in Q1 of 2010… but I guess that would be almost to perfect and similar to last year.
Anyway I wonder what might trigger the sell-off… perhaps there is a new around the cornet that will do that, who knows…
Have a great day!
Mitch
Yeah, the strong wave 2s really test the bears' grit. This rally should do the same since it's a larger wave 2 it appears.
Todd
Hi Mitch,
When I say "crash" I mean it in the larger big picture terms, i.e. the S&P dropping 50% in 12 months. Currently we're in a topping process which takes a long time. It involves a series of ups and downs (wave 1s and 2s), always sucking the bulls in on every drop thinking it's a great new buy point. But every new rally attempt falls short and less and less bulls participate the next time until eventually they capitulate and a wave iii, of (iii), of 3 of (3) occurs like in October of 2008. But we have to be patient and let it play out. A straight line down right now with all the optimism in the market would have bulls swarming in and creating a bottom that would last months probably. But a "slow bleed" would fool the bulls and be disastrous for them. Slow bleed now would lull them to sleep and have them buying all the way down, then BAM! a straight line down occurs and its too late for them to sell so they keep buying and the market keeps falling. This is what I want right now to sustain a decline of the magnitude I'm projecting. We just have to be patient.
As long as 1101 in the S&P holds, we are in a very large downtrend and big moves and surprises will be to the downside.
Todd
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