Tuesday, January 12, 2010
Stock Market Waking up, Showing Breakout Will be to the Downside
Yesterday I mentioned that the stock market has been a consolidative borefest and will break out soon. The fact that it didn't rally sharply the past few days severely weakened the wave 3 of C up scenario. Today's weakness appears to be the start of a larger decline that should last at least a few days. The attached Nasdaq Composite chart shows a clear A-B-C rally, finishing with wave C composed of a nice 5 wave rally. This of course can morph into an extension, but we'll make the market prove that before expecting it.
For very aggressive traders, it might be a good trade to short the S&P now with a stop just above yesterday's high of 1150 (cash index). I just put on a very small options put spread on the SPY with Feb expiration to try and catch a quick move to the downside in the coming days. Risk is tight and well defined so whether this trade works or not, it's still worth taking because the profits may really snowball into something big seeing as that we're looking for a major top to occur soon. Regardless, the very short term structure looks bearish.
The EUR/USD declined in the Asia and European sessions but has battled back in the US session. I'm looking for a wave 4 top of a double zig-zag as illustrated in yesterday's post (click here).
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.