Thursday, January 21, 2010
Market Continued, and Accelerated, this Week's Downtrend; The Bearish case is off to a Good Start
So today the stock market finally showed some continuation to the selling pressure from the day prior, and has accelerated that trend, unlike previous fakeout sell offs we've had in the past. It will be interesting to see the market action into the close though; about an hour from now. I'm looking for a strong close in the S&P cash index below the 1131.39 level I cited in a previous post (click here for chart). A strong close beneath that level today would strongly suggest that a significant top is in.
One thing I wanted to point out is that after Steve Hochberg with EWI pointed out the bullish island reversal in the VIX a few days ago, the "fear index" has been pushing higher and has really surged today; so much so that it's piercing through a 15 month descending trendline held since the October 2008 collapse. If the VIX closes above this trendline as shown on my attached chart, and holds it in the coming days, this indicator combined with the island reversal would suggest that the VIX is going to soar higher, and therefore stocks should tank lower.
My AUD/USD and GBP/USD sell stop orders executed so I'm now short both pairs with very wide stops. It's my goal to exit this trade if they don't act like I think they should, or I'll at least significantly lower my stops as soon as possible. Since my risk is so wide here, I'll little patience in holding on to these pairs for a long time if they don't perform. As you can see on my wave counts for these pairs, it seems they're completing 5 wave drops. Now this can morph into an extended 5th wave, or subdivide into various fractals leading the pairs lower, so I don't want to lower my stops now. I plan to let stocks show their hand a little more at the close here and see how these currencies react in the coming days and then take action to reduce risk.
I should have more later on the stock market after the close.
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.