Thursday, November 19, 2009
XLF and Russell Splitting Off to the Downside, Dow Trying to Hold up but Legs are Wobbling
The market improved slightly since my post this morning. NYSE decliners outpaced advancers 4.33 to 1, down volume was 88% of total volume, and 465 stocks on the S&P closed down. So today was a broad based 'sell-everything' decline. Volume looks like it's going to be around the 13 day moving average, so nothing stellar there. The Dow managed a solid rally into the close, making it seem like the stock market wasn't really that weak today. However, the Dow surged mostly all by its lonesome. Here are the finishing stats:
S&P 500 -1.34%
Nasdaq Comp -1.65%
Russell 2000 -2.34%
So today really was as bad as most people thought. Again, the Dow is surging higher while the rest are peeling away. Look at my 3 month comparison chart that shows the Russell 2000 and the XLF severely lagging the Dow's rally, with the Nasdaq and S&P tagging along. Also notice that even the Nasdaq and S&P are starting to fade a little bit and not following the Dow so aggressively. This is topping behavior as long as it exists. And it doesn't appear to be ending soon. Take a look at my 4 separate charts comparing the Dow, S&P, Russell and XLF. Today's late afternoon Dow pop rally was not so enthusiastic in the other indices. I know this is only the 5min time frame but you can see that on the bigger time frame charts going back to the 2007 top where I showed the splitting of the indices, to today's 3 month chart of the indices splitting, and down to the 5min chart where it shows even more splitting that a major top is forming as the high risk indices and sectors are leaving the but wave 2 or B rally early. The key is that this is telling us a MAJOR top is forming right now because investors only feel safe in buying the blue chip Dow and S&P stocks right now. This occurs at the end of major uptrends when they form a top, not at the start or middle of bull markets. If it were a bull market, the XLF, Russell and Nasdaqs would be the ones leading us higher, not the blue chip Dow.
There are various ways to interpret the short term wave count so I won't create the clutter on a chart listing them all. Since I'm looking for a major top I will assume a 5 wave decline is underway and the rallying most of the latter part of the day is a wave 4, meaning a sharp wave 5 to lows beneath today should occur fairly quickly tomorrow morning. Tomorrow is options expiration day so I expect some volatility as people jostle the market and reposition themselves for the next month/quarter.
Watch the action in the US dollar this afternoon and throughout the night to get a clue of where the market may head tomorrow. A strong dollar, weak EUR/USD, means the wave 5 down to new lows scenario is on firm footing. I remain short term bearish against the 1111 and 1114 levels as well as long term bearish. I'm not calling "the top" in yet, but it appears some sort of top is in that should last a few days/weeks at least.
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.